COPENHAGEN: Denmark's foreign exchange reserves fell slightly in October, and the central bank saw no reason to intervene in the forex market to steady the crown during the month, the bank said on Wednesday.
The country's foreign exchange reserves fell by the equivalent of 400 million crowns in October to 489.9 billion Danish crowns ($90.04 billion), the central bank said in a statement.
It was the first dip in the reserves since May, so the reserves a pointer to monetary policy remain near record high levels.
"The Nationalbank was not out intervening in the currency market during the month even though we saw a considerable strengthening of the crown towards the end of the month to levels where it is not unusual for the bank to sell crowns and buy foreign currency to weaken the crown," Nordea Markets senior analyst Troels Theill Eriksen said.
If such intervention fails to have the desired effect, the bank changes interest rates to weaken or strengthen the crown within its band to the euro.
The crown remains strong and short Danish money market interest rates are somewhat higher than corresponding rates in the euro zone, which also tends to boost the crown.
"Therefore there are prospects for the Nationalbank before long to choose to intervene to weaken the crown and follow up with an independent interest rate cut if the intervention does not lead to a durable weakening of the crown," Eriksen said.
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.
The Danish bank normally changes rates in lock-step with the European Central Bank, which is not expected to change rates at its meeting on Thursday.
The Danish bank can, however, opt to make independent rate changes above all in its secondary interest rates to boost or curb the crown.
Eriksen said he expected the Nationalbank to cut its certificates of deposit (CD) rate soon to 0.9 percent from 1.0 percent and ECB to cut interest rates by 0.5 percentage point over the next six months, which the Danish bank would shadow with cuts in its lending rate which now stands at 1.55 percent.
The decrease in the October reserves reflected the central bank's net sale of foreign exchange for 0.4 billion crowns and the central government's net foreign borrowing of 0.1 billion, the Nationalbank said.
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