Denmark’s central bank urges fiscal tightening to tame inflation

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COPENHAGEN, Sept 21 (Reuters) – Denmark’s central bank on Wednesday urged a tightening of the fiscal policy by more than already planned by the government in order to tame inflation.

“The combination of strong labour market pressures, high demand and high inflation carries the risk of a self-reinforcing wage-price spiral in Denmark,” central bank governor Lars Rohde said in a statement.

“We find that fiscal policy needs to be tightened and demand reduced as quickly as possible. Even more than what the government’s Finance Bill envisages,” Rohde said.

The bank recommended that the fiscal policy should contribute to reducing capacity pressure by almost 1% of GDP next year, in addition to what the government has proposed.

The bank said it expects the Danish economy to grow by 2% this year and to contract by 0.1% in 2023. In March, the central bank forecast the economy to grow by 2.1% both this year and the next.

(Reporting by Nikolaj Skydsgaard and Jacob Gronholt-Pedersen, editing by Terje Solsvik)

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