Lars Rohde, currently CEO of ATP, Denmark’s biggest pension fund, will replace Nils Bernstein as Head of Danmarks Nationalbank on 1 February 2013. Bernstein, previously secretary in the Prime Minister’s office and head of the Danish central bank since 2005, is retiring.
The replacement is not a surprise and Lars Rohde has been mentioned several times as a potential central bank governor. He is known as a person with an very good knowledge of financial markets and fine understanding of financial stability. As CEO of ATP since 1998, he has had a big impact on the Danish financial sector, which probably will continue with his new position. Investors will most likely be positive towards Rohde due to his deep market knowledge; the concern was that a dusty academic from the central administration without market touch would be named new central bank chief. This is certainly not the case with Rohde as central bank governor.
We think Nationalbanken’s role will remain unchanged after the replacement. The cornerstone will still be the fixed exchange rate regime and the core mandate will be the krone peg to the euro. We believe Rohde will continue to keep EUR/DKK close to the central parity like Bernstein has done. Interventions in the FX market will remain the primary tool. Whether he will use interest rate adjustments as frequently as his predecessor is yet to be seen. Rohde faces a challenge with the popular DKK, the large currency reserve and the already low official rates. If the appreciation pressure on the DKK continues Rohde will have to be equally as inventive as Bernstein has been – perhaps even more.
Most recently, EUR/DKK has edged higher and is now at its highest level since September 2011, around 7.4460. Accordingly, the chance/risk of additional independent Danish rate reductions has decreased substantially. We doubt Nationalbanken will lower rates independently unless the krone strengthens against euro towards 7.43 and only after the usual intervention in the FX market. The Danish ‘action barometer’ is thereby ‘low’ and attention now again turns to the situation in the eurozone.
In FX Trends, 15 August, we recommended buying EUR/DKK 1Y forward at 7.4176 for a 35bp carry. We still like this trade.