Denmark Hikes Rates As Draghi’s “Hawkish” Ease Relieves Peg Pressure

When Mario Draghi ‘disappointed’ markets in December by ‘only’ cutting the depo rate by 10 bps and ‘merely’ extending PSPP by six months while electing not to expand monthly asset purchases, the Riksbank, the Nationalbank, the Norges Bank, and the SNB all breathed heavy sighs of relief.
Essentially, Denmark, Sweden, Switzerland, and Norway are beholden to Mario Draghi. When the ECB eases, those countries’ central banks must ease as well or risk falling behind in the global currency wars.
This beggar thy neighbor race to the Keynesian bottom has resulted in negative rates for all of the central banks mentioned above with the exception of the Norges Bank and you can bet that when slumping crude proves incapable of bringing about sufficient NOK weakness, Norway will take the NIRP plunge as well.
While we doubt the ECB is done when it comes to going “full-Krugman” (as it were), Mario Draghi’s ‘hawkish’ ease did buy his counterparts some breathing room. Case in point: Denmark just hiked.
DANISH CENTRAL BANK RAISES DEPOSIT RATE TO -0.65% FROM -0.75% Earlier this week, Handelsbanken predicted the move, noting that strengthening pressure on DKK vs EUR has eased, while Danish FX reserves may have fallen to DKK415b by the end of December, “which would be below level before attack on DKK peg began almost one year ago.”

This post was published at Zero Hedge on 01/07/2016.