Denmark Dumps $7 Billion in Kroner on FX Market to Protect Peg
(Bloomberg) -- Denmark’s central bank sold 47 billion kroner ($7.1 billion) last month to protect its euro peg, the biggest monthly currency intervention to weaken the krone in seven years.
With the sale, Denmark’s foreign currency reserves jumped to 529.8 billion kroner at the end of December, the highest since 2015, the central bank in Copenhagen said in a statement on Tuesday.
The bank uses currency interventions to steer the krone in a tight band to the euro and changes its interest rates when those interventions become too great. Its benchmark deposit rate is already at minus 0.6%. Denmark has had negative rates longer than any other country.
Economists at Denmark’s largest lenders were split on whether the December interventions are a sign that a reduction in borrowing costs has moved closer.
At Nordea, Chief Analyst Jan Storup Nielsen said a rate cut could be “imminent” unless liquidity improves in the Danish money market.
“The key reason for the ongoing pressure for a stronger Danish krone is the low amount of excess liquidity,” he said.
Meanwhile, economists at Danske Bank said the interventions were mostly caused by “temporary effects.”
“There’s a limit to how low interest rates can go, and we’re probably not far from that,” Bjorn Tangaa Sillemann, a senior analyst at Danske, said in a note.
Economists at Sydbank and Jyske Bank said the chance of a rate cut has increased due to the high level of December interventions, while Nykredit analysts sided with Danske’s view that rates will stay on hold for now.
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