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Denmark raises repo rate to defend euro peg

Denmark's central bank on Thursday said it had increased its repo rate a notch to defend its currency peg to the euro which has been rising against the krone.

Published: 8 January 2016 07:51 CET
Denmark raises repo rate to defend euro peg
Photo: Colourbox
The repo rate, which remunerates short-term deposits with the central bank, went up 0.1 points to -0.65.
 
The key lending, discount and current account rates all remain unchanged.
 
The central bank has been intervening in currency markets to lift the weakening krone against the euro, depleting its foreign reserves in the process.
 
Narrowing the differential with European Central Bank rates makes the Danish currency more attractive to investors, likely causing an inflow of foreign funds and a rise in the krone.
 
The krone was trading at 0,1340 euro late on Thursday following the bank's move, exactly the level which Denmark has been aiming for since 1999, when the European single currency was introduced.

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FOREX

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.

Published: 17 March 2016 08:26 CET
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.
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