The uncertain outcome of the Italian election and the recent turbulent Cypriot bailout have moved EUR/DKK further below the central parity 7.46038.
The latest FX reserve figures released today indicate that Danmarks Nationalbank (DN) showed that the reserve was more or less unchanged in March at DKK481.9bn, and that the DN did not have to intervene to support DKK in March.
In our view, an independent Danish rate hike is therefore not imminent. If the DKK should come under pressure, we expect the DN to follow its normal symmetrical reaction function, which means that it takes approximately DKK10-20bn of intervention before rates will be changed.
Our main scenario for the European Central Bank (ECB) meeting is that the Governing Council will keep rates unchanged; in this case we do not expect any reaction from DN.
The recent downbeat euro area economic data have increased the probability of an ECB rate cut at tomorrow's meeting. We assess the likelihood of ECB cutting interest rates tomorrow to be around 25%.
If the ECB decides to cut interest rates, a 25bp refi rate cut would be the most likely outcome. In this case, the DN is likely to cut the lending rate by 15-25bp - more likely 25bp than 15bp after the latest move lower in EUR/DKK.
In the more unlikely scenario where the ECB cuts both the refinancing and deposit rates by 25bp, we would expect DN to lower the lending rate and rate on certificates of deposit by 25bp each.
To Read the Entire Report Please Click on the pdf File Below.
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Nationalbanken Preview: April 5, 2013
Published 04/05/2013, 03:08 AM
Updated 05/14/2017, 06:45 AM
Nationalbanken Preview: April 5, 2013
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