COPENHAGEN: Denmark’s central bank (Nationalbanken) said a big chunk of its profits last year came from battling speculators who bet it would abandon the krone’s peg to the euro here the other day.
The central bank said it made a profit of 3.6 billion kroner last year ($534 million, €483 million), out of which 2.2 billion kroner came from “the pressure on the krone in early 2015”.
The Scandinavian country adopted a fixed exchange rate to the Deutsche Mark in 1982, and adopted a similar policy towards the euro since the creation of the single currency in 1999.
When Switzerland unpegged the Swiss franc from the euro on January 15th, 2015, prompting it to soar in value, speculators believed Denmark would follow suit with the krone.
But when their interest faded, the central bank bought back the currency at a slightly lower exchange rate than at which it was sold.
“To this should be added substantial interest income resulting from the reduction of deposit rates to -0.75 percent,” the central bank wrote in its annual report.
Sydbank analyst Jacob Graven said the result was a sign of “hysteria among investors.”
“There was no reason to believe that the central bank would lose the krone war, because (its) coffers are inexhaustible,” he wrote in a note to investors, referring to the central bank’s capacity to create unlimited amounts of kroner to keep a lid on the currency’s appreciation.
A quarter of the total profit, which included income from investments, was transferred to the government.
On a more sombre note, the central bank lowered its Danish growth forecast for this year by half a percentage point to 1.3 percent.
