Denmark’s FX reserve declines in April, interest rate on certificate of deposits to stay unchanged

Denmark’s FX reserve in April fell DKK8.8 billion to DKK403.5 billion because of the Danmarks Nationalbank’s repayment of foreign debt. Last month, the pair EUR/DKK fell towards 7.4400. April’s FX reserve data indicates that the central bank did not intervene in the FX market by selling Danish Krone in order to support the pair.

But there was a discretionary addition of liquidity to the DKK money market in April apart from the likely rise in due net payments, noted Danske Bank. This was carried out in the DGB buybacks manner. The Danish Debt Management Office in April purchased DKK7 billion DGBs and hence added DKK 7 billion to liquidity in money market. In April, DGB buybacks rose to the level seen in January and February from March’s just DKK2 billion.

The spread in DKK-EUR money market interest rate is likely to be narrow, while the DKK money market is expected to have tight liquidity, according to Danske Bank.

“We forecast EUR/DKK at 7.4425 on 1-12M and the rate of interest on certificates of deposit (CD rate) to stay unchanged at minus 0.65%”, added Danske Bank.

There is a threat to the projection that there will be an increase in downward pressure on EUR/DKK, said Danske Bank.

“In such a scenario we look for DN to cap EUR/DKK downside around 7.4350-7.4400 through selling of DKK in FX intervention”, added Danske Bank.