Denmark's central bank increased its main interest rate by 0.6% to 1.25% on 28 October to a 13 year high soon after the European Central Bank move earlier the same day.   

Denmark was the first country in the world to impose negative rates in 2012 and the latest rate is now the highest since August 2009, taking effect from 28 October 2022.

In a statement Denmark's central bank said; "The interest rate increase is a consequence of the increase by the European Central Bank of its main monetary policy rate, the deposit facility rate, by 0.75 percentage point.

"The widening of the monetary policy spread vis-à-vis the euro area follows Danmarks Nationalbank's purchases of foreign exchange in the market."

Effective from the above date, Danmarks Nationalbank's interest rates are:

Current-account rate: 1.25% pa

Certificates of deposit rate: 1.25% pa

Lending rate: 1.40% pa

Discount rate: 1.25% pa

Earlier on 27 October, the European Central Bank has raised interest rates by 0.75 percentage points to 1.5%, the highest level since 2009, as Europe continues to battle against inflation amidst the backdrop of a looming recession. 

The central bank said its benchmark deposit rate, which was below zero as recently as July, would rise from 0.75% to 1.5%, the first time it has made two consecutive rate increases of that size. 

Although the move was in line with market expectations, the main change in the statement was the dropping of the reference to rate hikes happening over the "next several meetings".

In a statement, the ECB said that it still expected to raise rates further because inflation remained "far too high". Annual inflation is up to 9.9% in the euro area. 

The central bank also declared that the governing council had made "substantial progress" towards withdrawing policy accommodation.

Analysts polled by Bloomberg forecast the deposit rate peaking at 2.5% in March, though they expect the pace of hikes to ease after this month.

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said that the ECB is "clearly under pressure to deliver jumbo rate hikes even in a backdrop of contracting economic activity and a lurch into recession".

He added: ""With risks remaining elevated, near-term catalysts to unlock value in European equities remain unlikely, but with cooling inflation, lower gas prices, and easing of supply-chain bottlenecks, this opens up room for a policy pivot in early 2023 that could usher in a period of better market performance."

Gurpreet Gill, macro strategist for global fixed income at Goldman Sachs Asset Management, said that further strength in inflation or inflation expectations could prompt the ECB to maintain its aggressive approach at the next meeting in December with a further 0.75% rate rise.

However, the firm's current expectation is for a 0.5% increase  "in anticipation of further signs of a slowdown and given the ECB believes it has already ‘made substantial progress' in withdrawing policy accommodation".