Denmark likely to see a 15bp rate hike in 3M and 10bp in 6M

The recent market turmoil and subsequent beginning of speculation about further monetary easing from the European Central Bank (ECB) in the near term provides a good argument for DN to continue using the more flexible instrument of FX intervention and thus draw further on the FX reserve to support DKK if needed rather than raising rates.

"A 15bp unilateral hike is forecasted in the rate of interest on certificates of deposit in 3M and an additional 10bp hike in 6M to minus 0.50%. EUR/DKK is forecasted at 7.4610 in 1M and at 7.4550 in 3-12M on the back of DN starting to hike its key policy rate", says Danske bank.

Deposits on the government's account at the central bank rose DKK4bn in August to DKK175bn, more or less in line with the budget taking into account that it fell less than projected in July. 

"Over the rest of the year, the government's deposits are set to fall DKK80-100bn, depending on the level of DGB issuance this year. Liquidity is expected in the DKK money market to rise by a similar amount over coming months", added Danske Bank.