Denmark Seen Dumping Kroner for First Time Since Euro-Peg Crisis

  • The central bank is printing kroner again, Handelsbanken says
  • Danish debt office rejected all T-bill bids in auction

Denmark’s central bank looks to have reversed course in April, when Handelsbanken estimates it started selling kroner through direct interventions for the first time since its currency peg was under attack more than a year ago.

Nationalbanken this month registered an inflow of about 7 billion kroner ($1.1 billion) in foreign currency, most of which probably went toward interventions, according to estimates by Jes Asmussen, chief economist at Handelsbanken in Copenhagen. The move would mark the first time the bank dumped kroner on the market to weaken its currency since February 2015.

“We’re now in a situation that bears some similarity to what happened to the krone one year ago,” Asmussen said in a phone interview.

Danish FX reserves measured in billions of kroner
Danish FX reserves measured in billions of kroner

(Click here for more on Denmark’s currency crisis.)

The Danish central bank has struggled to normalize policy after its battle with speculators last year forced it to resort to extreme measures. The benchmark deposit rate was cut to minus 0.75 percent, government bond sales were halted and currency reserves almost doubled to make up about 40 percent of gross domestic product.

Economists have warned that a 10 basis point increase in the benchmark rate pushed through by Governor Lars Rohde in January may need to be reversed as demand for AAA-rated krone assets grows. Denmark has had negative rates for the better part of four years and most analysts don’t see policy going positive until at least 2018.

Denmark pegs its krone to the euro in a tight band
Denmark pegs its krone to the euro in a tight band

There are other signs that Denmark may be trying to keep investors from buying up krone assets. The debt office, which is part of the central bank, rejected all bids in a T-bill auction on Thursday that had attracted 4.54 billion kroner in offers. The bills have traditionally been popular with offshore investors. At the height of Denmark’s peg crisis last year, the country rejected bids exceeding 26 billion kroner over three T-bill auctions.

“Given that the central bank has previously used this as a tool to prevent the krone from strengthening, it’s likely that the result of this T-bill auction should be viewed as a defense of the krone,” Asmussen said. “It could obviously also be that the debt office just didn’t like the bids it received. We can only speculate.”

Julie Holm Simonsen, a spokeswoman for the central bank, declined to comment. The bank is due to report currency reserve data for April on May 3.

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