Denmark’s central bank halted currency interventions in March after record krone selling beat back speculation it would be forced to abandon its euro peg.
The bank’s foreign currency reserves rose 100 million kroner ($15 million) to 737.1 billion kroner in March, it said on Tuesday. The Copenhagen-based bank said it didn’t need to intervene in March, after selling 275 billion kroner of its own currency in the first two months of the year.
“The list of signs that the central bank has won the battle of the krone gets longer for each day that passes,” said Tore Stramer, a chief analyst at Nykredit Markets in Copenhagen.
Governor Lars Rohde has enacted an historic package of measures to deter investors from hoarding kroner, including four rate cuts this year that brought the deposit rate to a record minus 0.75 percent. Denmark also suspended government bond sales until further notice to drive down interest rates and reduce the appeal of AAA krone assets.
The nation was forced to act after Switzerland’s move to drop its Franc cap triggered speculation Denmark would scrap its three-decade-old currency peg. The measures have worked so far. On March 30, Denmark accepted purchases for its bills for the first time since January after rejecting 26.6 billion kroner in bids in three previous sales. The krone also last week fell to the weakest since 2001, dropping to 7.475 per euro. It was as strong as 7.4327 on Jan. 15, the day Switzerland abandoned its Franc cap.
The krone strengthened 0.03 percent to 7.4716 per euro as of 5:15 p.m. in Copenhagen.
Jan Stoerup Nielsen, an economist at Nordea Bank AB in Copenhagen, said the weak krone can also be attributed to dividend payments from Danish companies.
“So even though the currency is currently at a level where the central bank in the past has bought kroner to strengthen it, we believe that the bank will remain on hold on expectations that flows in the currency market soon turn around again,” he said.
Rohde’s job is to target 7.46038 per euro inside a 2.25 percent tolerance band, though in practice the central bank doesn’t allow swings bigger than 0.5 percent.
Nykredit’s Stramer said that the bank isn’t close to rolling back its rate cuts.
“The bank will to a large degree tackle the weakening of the krone via interventions in the foreign currency market and thereby reduce reserves from their record high,” he said.