Danish Central Bank May Need To Raise Rates On Krone’s Weakness

The Danish krone has weakened to a critical threshold within its peg to the euro, pushing the central bank in Copenhagen closer to an exit from 18 months of negative rates, according to Nordea Bank AB.

After refraining from interventions for 11 months, Denmark now needs to start buying up kroner and selling foreign currency to defend its peg, Nordea estimates. Those measures will be followed by raising the deposit rate, now at minus 0.1 percent, according to the bank.

“The krone is now trading at a critical level compared with what the Danish central bank usually tolerates,” Jan Stoerup Nielsen, an economist at Nordea in Copenhagen, said by phone. “Last time the krone traded at this level, we saw interventions and then a rate increase.”

Bloomberg

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