COPENHANGEN: Danmarks Nationalbank (DN) has just published February’s FX reserve and central bank balance sheet. The FX reserve rose by DKK3.1bn to DKK467bn in February, but DN did not make any FX interventions. Government deposits rose sharply to DKK182bn in February up from DKK156bn in January.
The focus in this monthly release remains on the development in government deposits and less on the FX reserve. The latter has not really moved since DN last intervened in FX markets in March 2017 year. The former has risen sharply this year, probably on the back of pension tax payments.
The implications of the rise in government deposits are twofold. In the short term, it could become a difficulty for DKK liquidity, which has been drained correspondingly. Hence, the rise in government deposits leaves plenty of room to cover the DKK32bn that the Debt Management Office plans to draw on the account this year to cover the domestic funding need, which includes buy-backs of the new governmentguaranteed mortgage bonds. It should also leave plenty of room for further buy-backs of government bonds as seen in 2017. Our FI research recommends buying both 5y and 10y DGBs. For more information see Reading the markets Denmark that we published on 22 February.
