MNI INTERVIEW: More Danish FX Intervention If Needed: Callesen

By Luke Heighton

     FRANKFURT(MNI) - Eurozone interest rates are likely to stay low for several

years, a senior National Bank of Denmark official told MNI, in an interview in

which he also said it was unclear whether coronavirus would hit Danish exports

and that the central bank would intervene again in foreign exchange markets if

necessary to maintain the krone's peg to the euro.

     "There are structural factors that have been putting downward pressures on

real interest rates on an international basis in the past decades," Per

Callesen, who sits on Danmarks Nationalbank's three-member Board of Governors,

said in an emailed response to questions. "While we cannot predict future

interest rate development, some of these factors are likely to continue to keep

interest rates low in the coming years."

     Ageing populations, high levels of saving in emerging market economies,

especially China, and lower productivity growth are all contributing to lower

real rates of interest globally, Callesen said, in remarks that echoed Dutch

central bank chief Klaas Knot's recent assertion that interest rate levels are

unlikely to become "fundamentally different" any time soon.

     Assessing the negative effects of negative rates will be "at the top of our

agenda" despite little evidence any have materialised thus far, Callesen said.

There are no visible bubbles in financial or housing markets, credit growth is

moderate, with "strong" pass-through to market rates, and bank profits remain

high despite a decrease in net interest income, he said.

     The Danish central bank stands ready to intervene again if necessary to

keep the crown pegged to the euro, Callesen said, with the level of FX

intervention dependent on the "given situation and developments in the FX

market."

     --FX INTERVENTION

     Denmark's foreign exchange reserves fell by more than 4 billion krone in

December, the central bank's largest FX intervention since October 2019, and the

third time in three months it has moved to keep the currency within +/-2.25% of

the euro. In September, the interest rate on central bank deposits was lowered

by 10bps to -0.75%, following the ECB's announcement that it was cutting its

deposit rate to -0.5%.

     The Danish economy has remained resilient to the global downturn in trade,

Callesen indicated, adding that, beyond a slight slowing in export growth, the

bank's outlook had not changed much since September 2019, when it said it

expected GDP to rise by 1.5% per year in 2020 and 2021, following growth of 1.8%

in 2019.

     So far, any drop in exports to Germany and Europe had been "more than

outweighed" by growth in exports beyond Europe, particularly of pharmaceuticals

and wind turbines. With the effects of coronavirus still unclear clear, Callesen

said it was not yet obvious whether Danish exports to China will suffer

significantly.

     Import prices and wage growth remain modest, he added, while domestic price

pressures are expected to increase only slightly this year. Tobacco tax hikes

coming into force in April this year and January next year should add 0.4

percentage point to inflation in 2020 and 0.2 percentage point in 2021.

     With climate change set to form a key aspect of the ECB's strategic

monetary policy review announced last week, Callesen pointed to a Nationalbank

study exploring the share of mortgaged assets at risk of flooding and the impact

for credit institutions.

     "These efforts mainly address climate change adaptation," he said, "but

they may also have indirect mitigating effects if they contribute to a better

pricing of climate related risks in the market."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MT$$$$,MX$$$$]