Scandinavian central banks watch ECB action, says Danske

Danske Markets says that if the ECB lowers rates today against its own expectations, then focus in Denmark will immediately switch to the Danish central bank and possible rate changes at 16.00 CET.

“A cut in the ECB refi rate by 25bp would, in our view, imply that the Danish lending rate would be lowered 10-15bp leaving it at 0.05-0.10% – negative lending rates are in our view very unlikely.”

“if the ECB also opts for a negative deposit rate, we would expect Nationalbanken to lower the certificates of deposit rate slightly, but most likely by less than the rate cut by the ECB would imply. Given the latest move higher in EUR/DKK and the lack of inflow into DKK, Nationalbanken might in fact decide to keep all rates unchanged in the case of an ECB rate cut today.”

Sweden’s central bank is balanced on whether to cut rates there, Danske Markets adds. A “hawkish” majority on its executive board may, however, give in to pressure and vote for a rate cut.

“The case for lowering is in place (and has been so for some time) – i.e. inflation below target and unemployment above the equilibrium level, slowing of household debt ratio and stronger-than-expected currency. , We believe the likelihood of a reduction in practice is 50/50 on the back of a little weaker data recently (including trade balance and PMI) although our official forecast is a reduction only in December. The market prices about a 14bp rate cut this morning. The question we have is only why these arguments should bite better this time?”


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