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Danish central bank blames pension funds for pressure on krone

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The Danish central bank, Danmarks Nationalbank, says it was Danish pension funds, life insurers and domestic investment funds that put the lion’s share of upward pressure on the krone in January and February rather than foreign speculators.

Lars Rohde, director of the Danmarks Nationalbank, said: “A little more than one-third of the inflows can be attributed to foreign net purchases of Danish kroner.”

Rohde was speaking at yesterday’s press conference presenting the bank’s quarterly report.

He said the currency inflows from foreign parties in January and February were undoubtedly a reaction to the decision by the Swiss central bank to allow the Swiss franc to float against the euro.

The European Central Bank’s (ECB) move to begin a wide-scale quantitative easing programme was also a factor behind the krone-buying, he said.

Rohde said the Danish central bank did not share the speculators’ view that the Danish currency would follow the Swiss franc’s example and leave its peg, saying the bank would continue its current policy of defending the krone-euro peg.

“But two-thirds of the inflows came from Danish investors of different types who bought kroner in the form of futures and hedged in that way different kinds of euro assets,” he said.

Data from the central bank indicated that, in January, pension funds and life insurance companies had given rise to the bulk of krone inflows from domestic parties, while in February the domestic portion had come mainly from business and investment fund parties.

Rohde said it was this combination of Danish pension funds and insurers and business and investment funds that had forced the central bank to intervene in the currency markets to defend the krone peg in the first two months of the year, to the tune of DKK295bn (€40bn).

Meanwhile, individual Danish pension funds have had little to say officially on the subject of whether they have begun hedging their euro assets against kroner.

There is arguably subtle pressure on the domestic institutions not to add to the central bank’s woes in having to keep the Danish currency unit tied to the euro.

The Danish central bank recently confirmed it introduced a new requirement in February for pension funds to report their currency positions to the central bank on a weekly basis. 

Karsten Biltoft, director of administration at the central bank, said: “We have asked for the information to get better understanding of market developments.”

However, the information is not being made public, he said.

A source within the Danish pensions sector commented that the central bankers had been clever in managing the upwards pressure on the Danish currency and particularly so in introducing the new weekly reporting requirement. 

Most people would think twice before changing their currency positions, knowing this information would have to be disclosed to the central bank, the source said.

He said the subject of whether Danish institutional investors were hedging their euro assets against a fall in the common currency against the Danish krone was a sensitive one.

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