Monetary and exchange-rate policy
|Danmarks Nationalbank is responsible for monetary policy in Denmark.|
Danmarks Nationalbank is responsible for the element of economic policy called monetary policy. Denmark pursues a fixed-exchange-rate policy vis-Ó-vis the euro. Consequently, the monetary policy and foreign-exchange policy are aimed at keeping the krone stable vis-Ó-vis the euro.
Usually, high inflation involves considerable losses to society. The main objective of monetary policy in the euro area is to maintain price stability, i.e. to avoid inflation. By keeping the krone stable vis-Ó-vis the euro, a basis for low inflation is also created in Denmark.
Danmarks Nationalbank can keep the krone stable vis-Ó-vis the euro by buying and selling foreign currency or changing its interest rates. When Danmarks Nationalbank sells foreign currency or raises its interest rates in relation to the interest rates of the European Central Bank, the krone tends to strengthen. When Danmarks Nationalbank buys foreign currency or lowers its interest rates in relation to the interest rates of the European Central Bank, the krone tends to weaken.
Danmarks Nationalbank's interest rates are determined by the Board of Governors. The Board of Governors meets every day and can change the interest rates at short notice if required by fixed-exchange-rate considerations.