January 20, 2015 / 12:55 PM / 5 years ago

UPDATE 2-Danish central bank, government say crown peg to remain

(Adds economy minister)

COPENHAGEN, Jan 20 (Reuters) - Denmark’s central bank has the tools to react “at any given moment” to preserve the crown currency’s peg to the euro, it said on Tuesday, while the economy minister also insisted the fixed exchange rate would be maintained.

Their comments came a day after the central bank cut interest rates to weaken the crown. That followed the abandonment last week of the Swiss franc’s cap to the euro, which had raised speculation that Denmark could follow suit.

“We have the necessary instruments in the form of interest rate changes and intervention to maintain the fixed exchange rate and we at all times look at market conditions and determine what to do,” central bank spokesman Karsten Biltoft said.

“We have the tools to react at any given moment.”

The crown has been part of the European Exchange Rate Mechanism (ERM2) since its inception and was pegged to the German mark before the introduction of the euro in 1999.

“The government will continue to stick to its present currency peg to the euro and the Danish central bank has all our support in carrying this out,” Economy Minister Morten Ostergaard later told Reuters. The policy introduced in 1982 has “served the Danish economy well”, he added.

Ostergaard had said after Monday’s rate cut that “no serious politician” would propose leaving or changing ERM2.

The central bank aims to keep the crown pegged within a narrow band of 7.29252 to 7.62824 crowns to the euro.

“The policy remains the way it has been — namely that we maintain it close to central parity,” Biltoft said.

Analysts expect a further cut as soon as this Thursday should the European Central Bank announce a widely anticipated quantitative easing package, which they say could lead to the euro weakening and the crown strengthening again. (Reporting by Sabina Zawadzki and Erik Matzen; Editing by Catherine Evans)

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