Danish central bank seen holding rates for long

Denmark’s central bank, Danmarks Nationalbank, did not intervene in the currency market last month. The Danish krone has returned to being on a stable trend following the central bank’s intervention in May and June, where it sold almost DKK 50 billion to avert extreme appreciation of DKK against the euro. With the currency being on a stable trend, the central bank is expected to keep the rates unchanged for a longer period of time, said Nordea Bank in a research note.

Since the start of 2015, the Danmarks Nationalbank has been intervening in the currency market to keep the DKK in a narrow range around its central parity against the euro. At the beginning, the central bank took action to offset the sharp increase in demand for kroner in early 2015 after the Swiss central bank’s decision to remove the floor on the Swiss franc against the euro.

Later it intervened due to the slow normalization of the Danish monetary policy. The Danish central bank recently sold kroner following the UK Brexit vote and the listing of DONG, Denmark’s energy firm, in order to defence its fixed exchange rate regime.

The Danish krone is likely to stabilize greatly in the future, according to Nordea Bank. The current interest rate differential to the euro area seems to be the correct one to keep a stable krone exchange rate at about 7.44. This is possibly a bit more solid than earlier. However, the currency reserves are also slightly lower than the average levels seen in recent years.

“We consequently expect the central bank’s policy rate to be maintained at the current -0.65 percent until end-2017,” added Nordea Bank.