Denmark’s Central Bank Supports Krone as Haven Demand Fades

Denmark’s central bank purchased kroner to support the currency’s peg to the euro for the fourth month in a row as weaker demand for haven assets and negative policy rates left their mark on the exchange rate.

Nationalbanken purchased net 2.6 billion kroner ($460 million) to strengthen the currency in December, the Copenhagen-based bank said in a statement today. Foreign reserves in total declined by 8 billion kroner to 504 billion kroner, it said.

The bank, which uses policy to target a krone rate of 7.46038 against the euro, in 2012 fought to weaken its currency in response to a capital influx spurred by investor flight from the euro crisis. The central bank cut its rates to record lows in July, bringing its lending rate to 0.2 percent and its deposit rate to minus 0.2 percent.

“In the long run, the debt crisis will be adding less stress and uncertainty to the European financial markets, and that will weaken demand for Danish kroner,” Tore Stramer, an economist Nykredit A/S in Copenhagen, said in a note. December’s purchase of 2.6 billion kroner is a “modest” amount which suggests that the central bank will probably wait until the middle of 2013 to raise interest rates, he said.

The central bank, which now has spent a net 5.2 billion kroner to support the currency over the last four months, normally raises interest rates after interventions accumulate to about 20 billion kroner, Jens Naervig Pedersen, an economist at Danske Bank A/S, said by phone before the central bank had published the data.

The krone traded little changed at 7.4601 per euro as of 4:07 p.m. local time. The currency traded at 7.4301 on May 25, the strongest level in 2012, according to prices available on the Bloomberg.

The bank used foreign currency to buy a net 2.6 billion kroner over the three months September to November to support the krone. In the first six months of the year, the bank sold a net 36.9 billion kroner to weaken the krone.

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