Denmark tries to quell euro peg rumours

Currency speculators are closely eyeing Denmark's deposit rate cuts as a sign that it might drop its peg against the euro but the economy minister cautions that "situation should not be overly dramatized".

Denmark tries to quell euro peg rumours
Currency speculators are keeping an eye on the actions of Nationalbanken. Photo: Colourbox
The decision by Denmark’s central bank, Nationalbanken, to reduce its deposit rate to -0.02 percent in the wake of Switzerland’s removal of its currency peg against the euro has speculators wondering if Denmark will do the same. 
But in an interview with Bloomberg on Tuesday, Economy Minister Morten Østergaard tried to silence the rumours by saying that the Swiss decision was based on “circumstances significantly different from Denmark’s”. 
“Any comparison between Denmark and Switzerland is impossible,” he said. 
A spokesperson for Danske Bank, Denmark’s largest, told Bloomberg that Denmark will likely carry out another rate cut on Thursday when the European Central Bank unveils a vast bond-buying programme aimed at kickstarting growth, which has put pressure on the euro.
A Nordea analyst told The Local last week that the Denmark’s interest rate could continue to fall. 
“There’s definitely a scenario where we can see the Danish interest rate going to a record low,” Nordea analyst Jan Storup Nielsen told The Local
The bank said it has been fielding many calls from offshore investors gauging Denmark’s plans following Switzerland’s surprise move.
Denmark's monetary policy is aimed at maintaining a stable exchange rate between the Danish krone and the euro.
The krone is pegged to the euro through an agreement known as the European Exchange Rate Mechanism (ERM II), under which the Danish currency can move only 2.25 percent up or down from a fixed rate of 7.46 krone per euro.
On Wednesday, the krone was trading at 7.436 per euro. 


Østergaard pointed to this “long-lasting and politically firmly anchored fixed-currency policy” in his attempt to silence speculators. 
“This situation should not be overly dramatized,” he told Bloomberg. 

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Danish central bank says speculators boosted profit

Denmark's central bank (Nationalbanken) on Wednesday said a big chunk of its profits last year came from battling speculators who bet it would abandon the krone's peg to the euro.

Danish central bank says speculators boosted profit
Lars Rohde presented the central bank's 2015 results on Wednesday. Photo: Nikolaj Linares/Scanpix
The central bank said it made a profit of 3.6 billion kroner last year ($534 million, €483 million), out of which 2.2 billion kroner came from “the pressure on the krone in early 2015”.
The Scandinavian country adopted a fixed exchange rate to the Deutsche Mark in 1982, and adopted a similar policy towards the euro since the creation of the single currency in 1999.
When Switzerland unpegged the Swiss franc from the euro on January 15th, 2015, prompting it to soar in value, speculators believed Denmark would follow suit with the krone.
But when their interest faded, the central bank bought back the currency at a slightly lower exchange rate than at which it was sold.
“To this should be added substantial interest income resulting from the reduction of deposit rates to -0.75 percent,” the central bank wrote in its annual report.
Sydbank analyst Jacob Graven said the result was a sign of “hysteria among investors.”
“There was no reason to believe that the central bank would lose the krone war, because (its) coffers are inexhaustible,” he wrote in a note to investors, referring to the central bank's capacity to create unlimited amounts of kroner to keep a lid on the currency's appreciation.
A quarter of the total profit, which included income from investments, was transferred to the government.
On a more sombre note, the central bank lowered its Danish growth forecast for this year by half a percentage point to 1.3 percent.