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Nationalbanken buys up 600 million kroner
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October 11th, 2012
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Purchase part of programme meant to keep kroner strong in euro-dominated market
Data released Tuesday indicates that Denmark’s national bank, Nationalbanken, purchased 600 million kroner (approximately $103.9 million or 80.5 million euros) using foreign currency reserves.
The purchase, which effectively removes kroner from circulation, serves to strengthen the krone against the euro. Such currency adjustments are intended to steady exchange rates and facilitate international business.
The purchase of kroner definitively ends an 18-month period during which the bank sold kroner off-and-on in order to stunt the currency’s rise against the euro.
The krone’s value against the euro has depreciated slightly since June, which has been worrisome for investors.
If the krone continues its depreciation, it will probably mean a hike in the central bank’s interest rates – another way to prevent inflation and keep the kroner steady, but one that deters investments and can lead to economic deceleration.
Experts, however, agree that a hike in the interest rate, while perhaps inevitable, won’t happen soon.
“[Nationalbank’s] intervention was very modest and we will need to see markedly higher purchases before the pressure on the krone is large enough to justify a rate hike,” Citi Group economist Tina Mortensen told the Wall Street Journal.
Jan Storup Nielsen, an analyst at Nordea – one of Denmark’s most common banks and Scandinavia’s largest financial group – shared Mortensen’s view.
“The small amount of kroner they have bought so far means that the rate hike is still some time ahead,” he told the Wall Street Journal.
Denmark’s decision not to join the Eurozone has long been debated around the country, but the latest opinion poll shows more Danes oppose adopting the euro than ever before.
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