Frontpage News 2013 Sound fiscal polic...

Sound fiscal policy ensures low interest rates

27 August 2013

Today's interest figures from the Central Bank of Denmark supports that interest rates remain low, partly due to sound public finances. 
The Central Bank of Denmark’s statistics shows that the country's businesses and households continue to borrow money at historically low prices. Still, private consumption is curbing, keeping growth down. And right now, the biggest growth problem is the lack of optimism.
"Companies have been saving money, consumers have money in the bank and the banks want to lend to good projects," explains Niels Storm Stenbæk, Chief Economist at the Danish Bankers Association.
The Danish Bankers Association share the government's position that financial politics should accelerate.
"Public finances in Denmark are basically sound, and it is contributing to the fact that firms and households can borrow money at historically low prices," says Niels Storm Stenbæk.
Figure 1: Interest rate development in key lending rates and the 10-year government bond 
Source: The Central Bank of Denmark and Reuters
Note: The lending rate for non-financial corporations and households, MFI interest rates on outstanding amounts. The former is for all loans with maturities from 1 year up to 5 years, while for households, it is based on housing loans with over 5 years maturity.

The fiscal space is exhausted

According to the Danish Bankers Association’s Chief Economist, the government has done enough to push to the economy through fiscal easing.
"There is already allocated large sums for projects in the coming years, and the biggest challenge right now is to get these projects resulted in real economic reality, so it can provide an employment effect," he says.
Niels Storm Stenbæk points out that in recent years budgeted fiscal policy has been difficult to realise. Billions of public budgets do therefore not have a direct effect on employment and growth before the money is actually channelled towards the society, he said.
"If the money is not being used, we run the risk of being left with a worse off situation, i.e. the uncertainty surrounding the Danish public finances will have an adverse effect on interest rates. If one wishes to ease through fiscal policy, it is important that it is targeted the structural measures that can enhance Denmark’s competitiveness, "concludes Stenbæk.
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