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The Danmarks Nationalbank (DN) has increased the sale of DKK. More intervention is expected, but there is a high level of patience before the next line of defense will be activated. Therefore, an independent interest rate cut is still not imminent, economists at Nordea report.

Markedly higher intervention from the Danish central bank

“In March the Danish central bank sold DKK17.0 B in the currency market to counter strengthening of the krone against the euro. This was the second consecutive month that the central bank had to intervene to keep the EUR/DKK cross within the desired range and the scale of intervention was markedly higher compared to DKK0.4 B in February.”

“As usual the central bank has not revealed the exact EUR/DKK level where it intervened in February. However, judging from the development in EUR/DKK during the month, it seems like a level slightly above 7.435 marks the lower tolerance level for the central bank at the current juncture.”

“The Danish central bank most likely sees the current downward pressure on EUR/DKK as a welcome opportunity to provide more excess liquidity to the Danish money market. This implies that the central bank is expected to intervene for at least DKK50 B before an independent interest rate cut comes into play.”

“The big test for this anticipated patience at the central bank will most likely come in May. In our main scenario we expect the Danish central bank to withstand the pressure and thereby keep the deposit rate unchanged at -0.50%. But if the pressure gets too intense, the central bank is likely to sanction an independent interest rate cut of 10bp on both the deposit rate and the lending rate.”