Tuesday August 4, 04:01 PM
UPDATE 1-Danish FX reserves rise to DKK 336.4 bln in July
COPENHAGEN, Aug 4 (Reuters) - Denmark's foreign exchange reserves rose by 6.2 billion Danish crowns to 336.4 billion in July ($65.03 billion), the central bank said on Tuesday.
Changes in foreign reserves can signal that the central bank has been stabilising the crown or indicate that the bank may change its key interest rates. But the Nationalbank gave no signal of any rate change on Tuesday.
No consensus estimate was available, but Moody's Economy had estimated that the forex reserves would rise to 350.0 billion crowns, Nordea had expected a minor increase to 336.0 billion, and Fionia Bank (Copenhagen: AMSP.CO - news) had forecast a decline to 324.3 billion.
The central bank's currency reserve figures exclude central government foreign loan transactions.
Nationalbank's net purchase of foreign exchange -- which includes such items as interest accrued on the reserves and changes in banks' euro-denominated deposits at the Nationalbank -- totalled 7.1 billion crowns, and the central government repaid 0.9 billion in foreign debt, the central bank said.
'In July ... Nationalbank's net purchase of foreign exchange due to intervention in the foreign-exchange market amounted to 6.6 billion crowns,' the bank said in a statement.
Intervention takes place when the central bank buys or sells foreign exchange for Danish crowns in the market to stabilise the exchange rate.
European Union member but euro zone outsider Denmark's long-standing policy of maintaining a stable crown against the euro means that the central bank changes interest rates for the sole purpose of keeping the crown around its central parity of 7.46038 per euro.
Though the Danish bank's policy shadows that of the European Central Bank, which is widely expected to keep its main rate steady at 1 percent on Thursday, economists said an autonomous Danish rate change could not be ruled out this week.
But more narrowing to the euro rate is expected in the months ahead.
'The large currency reserves pave the way for a narrowing of interest rates in the coming months,' Danske Bank (Copenhagen: DANSKE.CO - news) chief economist Steen Bocian said in a note to clients.
'It means the Danish central bank can afford to cut interest rates slightly even though the European Central Bank is unlikely to alter its interest rate in the short run,' Bocian said. 'We expect the Danish central bank to narrow the interest rate spread by a further 10 basis points in September.'
Handelsbanken (Stockholm: SHBA.ST - news) economist Rasmus Gudum-Sessingo said: 'We see the possibility that the interest rate may come down to 1.40 percent but it will be cut in small notches of 5 to 10 basis points at a time.'
'Today's figures suggest that the next step may already be at the end of the week following Thursday's interest rate meeting at the ECB,' he said.
(Reporting by John Acher and Teis Jensen; Editing by Richard Balmforth) ($1=5.173 Danish Crowns) Keywords: DENMARK RESERVES/
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