World Record Holder in Negative Rates Drives Danes to a New Low

(Bloomberg) -- In Denmark, where interest rates have been below zero longer than anywhere else, another record was just set.

The average interest rate on ordinary retail deposits has reached the lowest in the country’s history, at 0.08 percent, according to April numbers published by the central bank this week. That average covers a zero rate on two-thirds of ordinary deposits and 0.23 percent on the final third.

World Record Holder in Negative Rates Drives Danes to a New Low

Perhaps surprisingly, Danes are saving money at a record rate.

"The Danes are squirrels. They put away the nuts even though they expect to lose some of them," said Las Olsen, chief economist at Danske Bank A/S. It’s a habit he says was probably shaped during the financial crisis of 2008.

Since Danish policy rates first went negative back in mid-2012, banks have consistently pledged not to pass on that cost to their retail clients. Meanwhile, borrowing rates on some mortgages are lower than zero.

Borrowers representing almost 20 percent of loans given by Nykredit Realkredit A/S are essentially being paid by investors, according to Jeppe Borre, a mortgage analyst at Denmark’s largest mortgage lender. That’s a record, he says.

World Record Holder in Negative Rates Drives Danes to a New Low

Meanwhile business clients, excluding financial firms, face an average rate of minus 0.46 percent on almost two-thirds of their deposits, costing companies about 500 million kroner ($78 million) a year, the central bank said.

Kent Damsgaard, deputy director and chief economist at the Confederation of Danish Industry, says the net effect for business clients is still positive, giving the low borrowing rates. Most companies are more worried about what will happen when central banks start raising interest rates, he said.

“That’s the most important question as we see it for the real economy,” he said.

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