Danish rate hike towards year-end

In September the Danish central bank bought Danish kroner for DKK 22.1bn in the currency market to counter a weakening of the krone against the euro. In a historic perspective, it appears to be a very large amount, but it is actually the lowest level of intervention since April.

According to our calculations the intervention in September mainly happened during the first two weeks of the month. Subsequently the krone has appreciated, most of the time staying below its central parity. If this continues, September will be last month of major central bank intervention this time round.

With the purchases in September, the central bank has intervened in the market for a total amount of DKK 213bn since the beginning of April. With the buying of Danish kroner the currency reserve has declined to DKK 514bn at present, from a historical high of more than DKK 737bn in March.

Next week the central bank will resume government bond issuance after eight months. The bank can thus also start to consider the next step in the monetary policy normalisation process: an independent rate hike. The first rate hike is expected towards year-end, but there is a risk that further expansion of the ECB purchase programme could push the first Danish rate hike into 2016, says Nordea Bank in a report.