January 3, 2019 / 4:41 PM / 10 months ago

UPDATE 1-Danish central bank intervenes to bolster crown, rate hike closer-analysts

(Adds details, quotes from central bank and analyst)

COPENHAGEN, Jan 3 (Reuters) - Denmark’s central bank said on Thursday it had begun purchases of crowns in December to bolster the currency, but analysts said it may need to turn to tougher measures to maintain the currency’s peg to the euro.

The Danish crown has gradually weakened over the last 18 months to the lowest level in almost four years, prompting the central bank to make its first intervention in the foreign exchange market since March 2017, buying 11.6 billion Danish crowns ($1.77 billion) in December.

The move signals that an independent rate hike from the Nationalbank, which usually moves in lockstep with the European Central Bank, draws closer, Nordea said in a note.

Nordea said it estimated that the central bank will buy 15-20 billion crowns in the market before independently raising its key deposit rate to -0.55 percent from -0.65, one of the lowest in the world.

“Given the relatively large intervention in December and if the intervention continues in January, we therefore find it very likely that it will trigger an independent Danish rate hike of 10 basis points,” chief analyst Jan Storup Nielsen said.

Chief economist Tore Stramer of Nykredit said it was “certainly not unthinkable” that the Nationalbank would keep buying crowns until it had bought around 20 billion crowns after which he expected it to raise the key rate 0.1 percent.

The crown’s weakening against the euro is partly due to a decreasing current account surplus, reduced yield on Danes’ investments abroad and less appetite for Danish assets.

Denmark has not recently seen the same degree of safe haven inflows from investors as during other periods of market turbulence. That may in part be a result of a money laundering scandal at its largest lender Danske Bank. (Reporting by Teis Jensen; Editing by Janet Lawrence)

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