December 12, 2014 / 2:41 PM / 4 years ago

UPDATE 1-Analysts say Danish central bank may cut rates to rein in crown

COPENHAGEN, Dec 12 (Reuters) - The Danish crown hit a two-year high against the euro on Friday, in the wake of a weak European Central Bank auction of cheap loans, making it more likely Denmark may cut rates independently of ECB moves, analysts said.

Analysts reckon the Danish central bank has tried to weaken the currency by intervening to sell crowns for other currencies this month, but the scale of intervention is unclear.

“We generally expect a rate cut at the beginning of the new year, but if the crown continues to strengthen a rate cut could come already before Christmas,” economist Peter Bojsen Jakobsen from Sydbank wrote in a note to clients.

The Danish central bank’s policy is aimed at keeping the crown within a narrow band against the euro. On Friday it traded around 7.4370 per euro, the strongest level since July 2012, some distance from the central parity rate of 7.46038.

During the last three months, the central bank spent 6.9 billion Danish crowns ($1.2 billion) as it tried to keep the currency stable.

“I think they have intervened further in December, but I’m of the opinion that they will wait to cut rates until after the next interest rate meeting at the ECB,” Jan Storup Nielsen from Nordea said. The next meeting is due on Jan. 22.

The central bank cut its CD rate, the returns commercial banks get for parking their money with it for one week, to minus 0.05 percent on Sept 4 — charging banks to park their money there, tracking the ECB’s cut to minus 0.2 percent in the overnight deposit rate.

Banks in the euro area have taken barely more than half the 400 billion euros ($498 billion) of loans on offer from the ECB this year.

This has prompted expectations of additional monetary policy measures from the ECB which has driven euro area money market rates lower, widening the spread against the Danish equivalent.

That in turn has made it more attractive for investors to buy Danish securities and has strengthened the crown.

The Danish central bank manages the crown through market interventions before moving interest rates. Traditionally it has spent 10-20 billion crowns over a short period before resorting to a unilateral rate change. ($1 = 0.8030 euros) ($1 = 5.9718 Danish crowns) (Reporting by Ole Mikkelsen; Editing by Hugh Lawson)

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