Global uncertainty persists, Danish monetary policy remains neutral

Global financial markets have experienced renewed volatility due to the war in the Middle East, which has heightened uncertainty about future growth and inflation.

Both the US Federal Reserve and the European Central Bank kept their policy rates unchanged in March 2026, though the Fed had previously lowered rates by 0.75 percentage points since September 2025.

Higher energy prices have pushed up market-based inflation expectations, leading investors to anticipate higher policy rates in the US and euro area compared to September 2025 projections.

Despite these tensions, risk premia on equities remain historically low.

The ECB noted euro area inflation at 1.9 percent in February 2026, near its 2.0 percent target, while the Fed observed US inflation at 2.4 percent, still above its target.

The Fed also initiated a new purchase program in December 2025 to ensure sufficient central bank liquidity and limit money market fluctuations, ending its balance sheet reduction.

The Danish krone has gradually weakened against the euro since September 2025, maintaining a monetary policy spread of -40 basis points to the euro area.

This depreciation stems partly from reduced krone demand by Danish insurance and pension companies.

Despite these currency movements, Danmarks Nationalbank has not intervened in the foreign exchange market since December 2022, as of end-February 2026.

The central bank assesses that geopolitical uncertainty has not significantly impacted the krone's exchange rate.

Policy rates are currently close to estimates of the neutral level.

While market rates have risen, increasing financing costs for Danish households and businesses, Danmarks Nationalbank concludes that overall financial conditions for the Danish economy remain broadly neutral.