The Danish Central Bank, Danmarks Nationalbank, this week started reissuing treasury bills, signalling that it has won the first battle against international currency speculators.
In January, the Danish krone came under “attack” after Switzerland abandoned its currency peg to the euro and international investors zoomed in on Denmark as the next country likely to abandon its currency peg.
Unlike Switzerland’s stance, the Danish currency peg to the euro was never a temporary arrangement and has been the corner stone of the country’s monetary policy for decades, prompting the governor of the Danish Central Bank, Lars Rohde to hold firm and defend the Danish currency from appreciating.
Determined governor: no treasury bills
Four consecutive rate cuts in January and February, sending the bank’s deposit rate deeper into negative territory, was followed by an announcement that sale of treasury bills would be suspended indefinitely. The central bank director’s determination soon afterwards started to stave off further speculation that Denmark might abandon its fixed exchange rate with the euro.
Interest rates in Denmark are still at a rock-bottom low, and the rate cuts in January and February has turned up the heat in parts of the capitals housing markets that are already hot. This again has raised concerns among analysts and policy makers that low rates could lead to a rerun of the housing bubble and subsequent bust, which has marred the Danish economy for the past seven years.
But such fears are exaggerated, Sune Mortensen told the Wall Street Journal this week. He is the head of retail products at Nykredit, one of Denmark’s biggest issuers of mortgage bonds.
-People know [negative rates are] a fantasy, it’s not how it’s supposed to be. They’re actually behaving quite sensibly. We’re seeing more redemptions and more fixed-rate loans, Mortensen said.