Danish central bank likely to consider hiking rates in 2019 – Danske Bank

The Danish krone exchange rate has continued to be stable, while the Danmarks Nationalbank has had no reason to intervene in the FX markets since March 2017, noted Danske Bank. A still huge current account surplus is underpinning the DKK, even if dollar weakness in 2017 might have suggested downward pressure to the DKK against the euro. The DKK is also being underpinned by strong foreign interest in callable Danish mortgage bonds, which foreign investors have placed around DKK 100 billion since spring 2016.

Foreign investor interest is a huge reason why the effective interest rate on mortgage loans was pushed to new lows in 2017, stated Danske Bank. The European Central Bank might taper its buyback program this year and might probably not extend it next year. This might push long rates slightly higher again.

“We are also expecting the ECB to begin considering actual rate hikes in 2019, and Danmarks Nationalbank is likely to follow suit, though policy rates will probably not be positive again until 2020”, added Danske Bank.

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