2 Feb 2015
Denmark won’t go the SNB way, expect the peg to stay – SG
FXStreet (Barcelona) - Michala Marcussen, Global Head of Economics at Societe Generale views that Denmark is not Switzerland, and the current EUR/DKK peg will stay, expecting DNB to stand to its commitment to keep the krone stable via FX intervention, QE or rate cuts.
Key Quotes
“Over the past weeks, Danmarks Nationalbank (DNB) has cut rates no less than three times with the certificate of deposit now at -0.50%, compared to -0.20% on the ECB’s deposit rate. In further action, the Ministry of Finance, upon advice from the DNB, has suspended government bond issuance.”
“The government already has sufficient funds to cover its needs in 2015. By halting issuance, the DNB hopes that interest rate spreads in the longer maturity segments will decline, thereby limiting inflows from abroad.”
“Following the announcement Friday, Danish bond yields rallied and the benchmark 10-year closed at 0.305% compared to 0.301% for the corresponding German benchmark.”
“Finally, the DNB also reported that it had intervened in FX markets. By just how much should become apparent on 3 February when new data are released.”
“Our view remains that Denmark is not Switzerland. The current fixed krone policy has been in place for over 30 years and the commitment to keeping the EUR/DKK stable is very strong indeed, both for reasons of competitiveness and financial stability.”
“Nonetheless, we expect that as the ECB expands its balance sheet, the DNB will have to act further. Action can take several forms, however; FX intervention, outright QE or further rate cuts.”
“In all instances, it will come at a cost to the banking system, but the cost of the alternative scenario would to our minds prove far higher.”
Key Quotes
“Over the past weeks, Danmarks Nationalbank (DNB) has cut rates no less than three times with the certificate of deposit now at -0.50%, compared to -0.20% on the ECB’s deposit rate. In further action, the Ministry of Finance, upon advice from the DNB, has suspended government bond issuance.”
“The government already has sufficient funds to cover its needs in 2015. By halting issuance, the DNB hopes that interest rate spreads in the longer maturity segments will decline, thereby limiting inflows from abroad.”
“Following the announcement Friday, Danish bond yields rallied and the benchmark 10-year closed at 0.305% compared to 0.301% for the corresponding German benchmark.”
“Finally, the DNB also reported that it had intervened in FX markets. By just how much should become apparent on 3 February when new data are released.”
“Our view remains that Denmark is not Switzerland. The current fixed krone policy has been in place for over 30 years and the commitment to keeping the EUR/DKK stable is very strong indeed, both for reasons of competitiveness and financial stability.”
“Nonetheless, we expect that as the ECB expands its balance sheet, the DNB will have to act further. Action can take several forms, however; FX intervention, outright QE or further rate cuts.”
“In all instances, it will come at a cost to the banking system, but the cost of the alternative scenario would to our minds prove far higher.”