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Danish foreign exchange reserves rise in January, DN likely to keep key policy rate on hold

Danish central bank has published the foreign exchange reserve and central bank balance sheet data for the month of January. The country’s FX reserve rose to DKK 464 billion in January from December’s revised DKK 462 billion. Danmarks Nationalbank did not intervene in the month. Government deposits rose to DKK 156 billion from December’s DKK 135 billion.

The large rise in government deposits is likely because of huge payments of pension taxes that take place in January and February every year. The government had just expected around DKK 16 billion, but the data shows that payments would be higher, noted Danske Bank in a research report.

The Finance ministry has a year-end target of DKK 75-100 billion for the level of government deposits. Therefore, the rise leaves plenty of room to cover the DKK 32 billion that the Debt Management Office plans to draw on the account this year to cover the domestic funding need, which includes buybacks of the new government guaranteed mortgage bonds.

“For EUR/DKK, we forecast it to trade around 7.4450 on 1-6M and 7.4475 on 12M and for DN to keep the key policy rate, the rate of interest on certificates of deposit, unchanged at minus 0.65 percent on 12M. We see some short-term downside risk to our forecast as the aforementioned rise in government deposits may lead to tighter DKK liquidity over the coming months and support the DKK”, added Dankse Bank.

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