COPENHAGEN: Danish central bank chief Nils Bernstein played down on Monday speculation that the bank aimed to build up Denmark's foreign exchange reserves in a bid to protect the Danish currency from any broader sell-off of European assets.
The bank threw money at the crown to protect it from the fallout of 2008's financial turmoil and some analysts say building up a warchest to defend it again may explain why it has not cut interest rates in recent weeks.
But Bernstein reiterated saw no need to raise the current level of reserves, which have more than tripled from a 2008 low equivalent of 132 billion crowns.
"I have no wish for the currency reserve to grow further," Bernstein told Reuters on the sidelines of the Danish Bankers Association's annual meeting.
"We have no particular goal for the reserve, apart from it being large enough to counter problems."
The bank intervenes in the foreign exchange market, using the reserves to buy or sell Danish crowns to strengthen or weaken the currency according to its mandate to keep the crown steady within its ERM-2 band to the euro. If such intervention fails to have the desired effect, the National bank changes interest rates.
The foreign exchange reserves fell by the equivalent of 22.2 billion crowns in November to 467.7 billion crowns ($84.49 billion), despite the bank's net sale of 10.7 billion crowns for foreign currencies to weaken the crown, official data showed on Dec. 2.
The reserves fell in November as a result of repayment of state debt, marking the second consecutive fall in the monthly reserves figure, which had risen since May.
The reserves have risen more or less steadily since 2008, and Bernstein told Reuters in an interview in December 2010 that the bank had learned from that experience and was comfortable with a higher level of reserves.
Economists widely expect the Danish central bank to cut interest rates again soon, possibly this week, because of the strength of the crown which over the past two weeks has traded on the strong side of 7.44 to the euro.
The bank changes interest rates for the sole purpose of keeping the crown within a plus or minus 2.25 percent band around a central rate of 7.46038 to the euro.
That means the currency can fluctuate between 7.29252 and 7.62824 to the euro, though in practice the bank keeps a much tighter range.
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