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UPDATE 1-Danish forex reserves leap above forecast in Aug

Published 09/02/2009, 11:20 AM
Updated 09/02/2009, 11:24 AM
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* Denmark's foreign-exchange reserves jump 11 pct in Aug

* Reserves rose by 36.6 bln to 374.1 bln DKK ($71.57 bln)

* Figure exceeds economists' median forecast of 356.4 bln

(Adds details, quotes)

COPENHAGEN, Sept 2 (Reuters) - Denmark's foreign-exchange reserves rose by 37.6 billion crowns to 374.1 billion Danish crowns ($71.57 billion) in August, the central bank said on Wednesday, underpinning expectations of a further rate cut.

The figure overshot the median forecast in a Reuters survey of five analysts for a rise to 356.4 billion crowns, excluding central government foreign loan transactions.

The central bank, whose monetary policy aims for a steady crown against the euro, said its net purchases of foreign currency in August amounted to 37.7 billion crowns.

"Nationalbank's net purchase of foreign exchange due to intervention in the foreign-exchange market amounted to 26.9 billion crowns," the bank said in a statement.

Intervention takes place when the central bank buys and sells foreign exchange for Danish crowns in the foreign-exchange market to stabilise the exchange rate, which is the goal of its monetary policy.

"The interventions in August were the third biggest ever in a single month and can therefore be compared to the record months of May this year and November last year," said Danske Markets senior FX analyst John Hydeskov.

"That indicates that the acceleration in the reserve has not declined as earlier assumed," he said.

The total figure for the change in reserves includes such items as interest on the forex reserve, central government net payments in foreign currency, and changes in banks' deposits in euro-denominated accounts at the Nationalbank.

The Nationalbank cut its main policy rate, the lending rate, twice by 10 basis points in August, to the current level of 1.35 percent to ease upward pressure on the crown and reduce the spread to euro-zone rates.

Many analysts expect a further cut of 10 basis point this year, which would narrow the spread to the euro zone to 25 basis points assuming the European Central Bank holds rates steady.

Nordea Markets senior analyst Troels Theill Eriksen said in a note to clients: "A rate cut of a further 0.1 percentage points could come within a short period of time."

European Union member but euro zone outsider Denmark's policy of holding the crown steady against the euro means that the central bank shifts interest rates for the sole purpose of keeping the crown around its central parity of 7.46038 per euro .

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