Monetary-policy instruments

Danmarks Nationalbank conducts monetary policy via its monetary-policy instruments, i.e. the facilities used by Danmarks Nationalbank to manage and remunerate accounts (lending and deposits) with banks and mortgage-credit institutes – the monetary-policy counterparties.

The monetary policy counterparties have access to the monetary policy instruments, i.e. they can place liquidity with Danmarks Nationalbank as overnight deposits (current-account deposits) and participate in Danmarks Nationalbank's weekly and monthly market operations. In the weekly market operations, counterparties can obtain 7-day loans against collateral, or deposit liquidity for 7 days by purchasing certificates of deposit. In the monthly market operations the counterparties can obtain 6-month loans against collateral. The interest rate on 6-month loans is variable, set at Danmarks Nationalbank's 7-day lending rate. The monetary policy counterparties are free to determine the volume of loans at the weekly and monthly operations.

The collateral basis, which is applied to obtain loans in Danmarks Nationalbank, consists of securities, mainly government and covered bonds, and banks' own credit claims of good quality.
The net positions of the monetary policy counterparties are their portfolios of certificates of deposit and current-account deposits, less their loans from Danmarks Nationalbank. The net positions are primarily affected by fluctuations in government payments and Danmarks Nationalbank's purchase and sale of foreign exchange. In the weekly market operations, the monetary policy counterparties normally structure their net positions so that the total current-account deposit covers the expected liquidity requirement for the next week. When major liquidity fluctuations are expected, Danmarks Nationalbank may announce in advance that it will buy back or sell certificates of deposit outside the fixed market operations. Danmarks Nationalbank may also buy back or sell certificates of deposit without prior announcement. Danmarks Nationalbank can also when and to the extent it is needed perform liquidity-adjusting deposit and lending operations in kroner. The rate of interest and maturity of the operations will reflect market conditions.

Limits have been set for the size of the monetary policy counterparties' current-account deposits. The purpose of these limits is to prevent the build-up of large current-account deposits that may be used for speculation in interest-rate and/or exchange-rate changes. If the total limit for the counterparties is exceeded, current-account deposits in excess of the individual limits will be converted into certificates of deposit.

Technically , it is possible to obtain negative interest rates with the existing monetary-policy instruments. In exceptional circumstances it may be necessary for Danmarks Nationalbank to lower the rate of interest on certificate of deposit so that it becomes negative. Such a scenario would imply that the current-account rate will be higher than the rate of interest on certificate deposit and the current-account limits will be revised upward. If the total current-account deposits exceed the overall limit, Danmarks Nationalbank will convert the current-account deposits into certificates of deposit.

Access to and use of accounts at Danmarks Nationalbank are determined in Danmarks Nationalbank's terms and conditions for accounts (Documentation basis for the monetary policy instruments).