Dansmarks Nationalbank unlikely to hike rates until December 2019 – Danske Bank

Danish interest rates are closely tied to the euro area interest rates because of the fixed exchange rate mechanism, and the ECB is expected to make its first hike in December 2019, stated Danske Bank in a research report. Nevertheless, the DKK has been depreciation in the recent months, probably due to a falling current account surplus and lower returns on Danish investments abroad.

These factors appear as greatly transitory and the Danmarks Nationalbank is unlikely to be prompted to raise the interest rates before the ECB moves, said Danske Bank. The government intends to withdraw about DKK 50 billion from its DN account next year, mainly to finance the redemption of mortgage loans in the social housing sector, which going forward would be financed by direct loans from the government. This might lead to downward pressure on Danish yields and tends to subdue the krone, which the central bank might offset by purchasing DKK, stated Danske Bank.

“While our main scenario is for no rate hikes from either the ECB or Danmarks Nationalbank until December 2019, we still expect long yields to rise as rate hikes draw closer”, added Danske Bank.