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Financials

UPDATE 1-Denmark cuts rates, CD rate negative in historic move

(Adds details, quotes, background)

* C.bank cuts main policy rate by 25 bps to 0.20 pct

* Cuts CD rate by 25 bps to negative 0.20 pct

* Introduces a negative policy rate for first time

* Keeps current account rate unchanged at 0.0 pct

* Says to lift current account limits

COPENHAGEN, July 5 (Reuters) - Denmark’s central bank cut interest rates by a quarter point on Thursday, shadowing the European Central Bank’s action earlier in the day, in a historic move that put one of its secondary rates below zero for the first time.

The Nationalbank cut its lending rate to 0.20 percent from 0.45 percent and lowered its certificates of deposit (CD) rate to negative 0.20 percent from 0.05 percent to match the ECB’s move and to curb strength in the Danish currency.

“The interest rate reduction is a consequence of the reduction by the European Central Bank of its monetary policy rates by 0.25 percentage point,” the Nationalbank said in a statement.

Analysts called the negative CD rate a historic milestone.

“There has for some time been talk about the possibility that we might witness a negative rate from the central bank,” Realkredit Danmark chief economist Christian Hilligsoe Heinig said in a note to clients. “This scenario, which not very long ago seemed absurd, has just become reality.”

“The lowest interest rate levels in the history of the Nationalbank’s existence since 1818 can be attributed to the ... economic crisis in the euro zone,” Heinig said.

The Nationalbank, whose policy aims to keep the crown steady within a narrow band to the euro, left its current account rate unchanged at 0.0 percent and raised the limits on how much money banks can hold in the current account at the central bank.

It raised the total limit on the current account to 69.7 billion Danish crowns ($11.73 billion) from 23.15 billion.

The Nationalbank had said at the end of May, when it last lowered borrowing costs, that rates could turn negative and that it had the tools to cope with that if necessary.

It said then that a scenario with a negative CD rate would imply a current account rate higher than the rate of interest on CDs and an upward revision of current account limits.

The bank has been fighting with intervention in the market to curb the strength in the Danish crown which has been fuelled by crisis-hit investors diversifying out of euro assets and into non-euro securities, including Danish bonds.

The crown softened to 7.4406 to the euro from levels around 7.4365 before the bank’s announcement. ($1 = 5.9442 Danish crowns) (Reporting by Copenhagen newsroom; Editing by Catherine Evans)

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