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2 Jun 2015
Denmark: FX intervention continued in May – Danske
FXStreet (Barcelona) - Jens Nærvig Pedersen, Senior Analyst at Danske Bank, notes that the Danmarks Nationalbank continued FX intervention in May, purchasing DKK to cap EUR/DKK’s topside.
Key Quotes
“DN has just published May’s FX reserve and balance sheet figures. The FX reserve declined by DKK46.6bn in May to DKK658.9bn. The bulk of the decline was due to DN purchasing DKK in FX intervention to cap EUR/DKK topside – in May, DN purchased DKK in FX intervention for DKK35bn. DKK10.6bn was due to repayment of government foreign debt. May’s balance sheet further shows that government deposits declined DKK10bn to DKK225bn in May.”
“Since the beginning of April, DN has made FX intervention for an accumulated DKK68.9bn, while leaving its policy rates unchanged. Hence, so far, DN has been willing to allow the FX reserve to decline more than it would under more normal circumstances without touching policy rates. This change in reaction function should be seen as a consequence of the significant inflow into DKK in January and February.”
“EUR/DKK has fallen below the central rate as the uncertain prospect of a solution to Greece’s fiscal situation is weighing on the cross and is likely to have put DN intervention on hold. We expect it to take a substantial outflow on top of the intervention conducted in April and May to trigger a unilateral rate increase – in our view, this is not likely to happen before a firm deal is struck on Greece’s fiscal situation. This we expect to happen in the coming months though.”
“Thus, we forecast DN will hike the rate of interest on certificates of deposit by 15bp on 3M and an additional 10bp on 6M to minus 0.50%”
Key Quotes
“DN has just published May’s FX reserve and balance sheet figures. The FX reserve declined by DKK46.6bn in May to DKK658.9bn. The bulk of the decline was due to DN purchasing DKK in FX intervention to cap EUR/DKK topside – in May, DN purchased DKK in FX intervention for DKK35bn. DKK10.6bn was due to repayment of government foreign debt. May’s balance sheet further shows that government deposits declined DKK10bn to DKK225bn in May.”
“Since the beginning of April, DN has made FX intervention for an accumulated DKK68.9bn, while leaving its policy rates unchanged. Hence, so far, DN has been willing to allow the FX reserve to decline more than it would under more normal circumstances without touching policy rates. This change in reaction function should be seen as a consequence of the significant inflow into DKK in January and February.”
“EUR/DKK has fallen below the central rate as the uncertain prospect of a solution to Greece’s fiscal situation is weighing on the cross and is likely to have put DN intervention on hold. We expect it to take a substantial outflow on top of the intervention conducted in April and May to trigger a unilateral rate increase – in our view, this is not likely to happen before a firm deal is struck on Greece’s fiscal situation. This we expect to happen in the coming months though.”
“Thus, we forecast DN will hike the rate of interest on certificates of deposit by 15bp on 3M and an additional 10bp on 6M to minus 0.50%”