Danske Research Team
Danske Bank A/S
Danmarks Nationalbank (DN) this afternoon announced a 10bp increase in the interest rate on certificates of deposit from -0.75% to -0.65%. The lending rate, the discount rate and the current-account rate were kept unchanged at 0.05% and 0.00%, respectively. The EUR-DKK monetary policy rate spread is thereby narrowed from -0.45% to -0.35%.
The independent Danish rate hike follows DN’s intervention in the FX market to cap EUR/DKK upside and in order to limit the need for additional FX intervention. The latest FX reserve data, released on 5 January showed that DN stepped up FX intervention in December. Since April, DN has purchased DKK in FX intervention for DKK280bn, which has brought the FX reserve down below the level of last year of around DKK450bn and thus to a more ‘normal’ level.
In addition to the deposit rate increase, DN lowered the current-account limits from DKK63bn to DKK32bn, which actually works somewhat against the increase in the deposit rate, as banks can now place less liquidity on the current account at 0.00%. The reduction in the current account limits is a natural consequence as excess liquidity has dropped substantially.
EUR/DKK spot initially dropped slightly below 7.46 after the announcement but quickly climbed back as the Danish rate hike was widely expected in the market. All in all, today’s announcement suggests that we now are back to a more normal situation, and we do not expect any further independent rate increases from DN.
The independent Danish rate hike follows DN’s intervention in the FX market to cap EUR/DKK upside and in order to limit the need for additional FX intervention. The latest FX reserve data, released on 5 January showed that DN stepped up FX intervention in December. Since April, DN has purchased DKK in FX intervention for DKK280bn, which has brought the FX reserve down below the level of last year of around DKK450bn and thus to a more ‘normal’ level.
In addition to the deposit rate increase, DN lowered the current-account limits from DKK63bn to DKK32bn, which actually works somewhat against the increase in the deposit rate, as banks can now place less liquidity on the current account at 0.00%. The reduction in the current account limits is a natural consequence as excess liquidity has dropped substantially.
EUR/DKK spot initially dropped slightly below 7.46 after the announcement but quickly climbed back as the Danish rate hike was widely expected in the market. All in all, today’s announcement suggests that we now are back to a more normal situation, and we do not expect any further independent rate increases from DN.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD stays in tight channel above 1.0750
EUR/USD continues to fluctuate in a narrow band slightly above 1.0750 after posting small gains on Monday. Disappointing Factory Orders data from Germany limits the Euro's gains as investors keep a close eye on comments from central bankers.
GBP/USD retreats below 1.2550 as USD recovers
GBP/USD stays under modest bearish pressure and trades below 1.2550 in the European session on Tuesday. The cautious market stance helps the USD hold its ground and doesn't allow the pair to regain its traction. The Bank of England will announce policy decisions on Thursday.
Gold price turns red below $2,320 amid renewed US dollar demand
Gold trades in negative territory below $2,320 as the souring mood allows the USD to find demand on Tuesday. Nevertheless, the benchmark 10-year US Treasury bond yield stays below 4.5% and helps XAU/USD limit its losses.
Ripple lawsuit develops with SEC reply under seal, XRP holders await public redacted versions
Ripple lawsuit’s latest development is SEC filing, under seal. The regulator has filed its reply brief and supporting exhibits and the documents will be made public on Wednesday, May 8.
The impact of economic indicators and global dynamics on the US Dollar
Recent labor market data suggest a cooling economy. The disappointing job creation and rising unemployment hint at a slackening demand for labor, which, coupled with subdued wage growth, could signal a slower economic trajectory.