Danish FX reserves remain unchanged in March

Danish central bank has published its foreign exchange reserve data for the month of March, along with its balance sheet. The FX reserve remained unchanged at DKK 467 billion in the month as the Danmarks Nationalbank did not make any FX interventions. Government deposits rose further to DKK 207 billion in March from February’s DKK 182 billion. The sharp rise in government deposits this year is drawing attention and affecting markets, noted Danske Bank in a research report. The government has seen a large inflow to its account at DN this year, probably owing to large tax payments on pension returns and corporate taxes.

The effects of the increase in government deposits are twofold. In the short term, it is a pain for DKK liquidity, which has been drained correspondingly, stated Danske Bank. This has further pushed EUR/DKK FX forwards up. DKK liquidity is likely to ease again through 2018 as the government brings down its deposits again. Therefore, this is mainly a short-term issue. Over the remainder of 2018, it would possibly have implications for DGB issuance.

“Concerning EUR/DKK, we forecast it trading around 7.4450 on 1-6M and 7.4475 on 12M and for DN to keep the key policy rate, the rate of interest on certificates of deposit, unchanged at minus 0.65% on 12M”, added Danske Bank.

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