📝 Do Not Expect Changes to Danish Kroner Rate Peg: Danske Bank

Given Denmark's large current account surplus, a stronger DKK could be a way to dampen domestic price pressures. By our judgement, this is the most debate about the fixed exchange rate policy that we have seen since at least the ERM crisis in 1992. However, it is still marginalised.

It is unlikely, in our view, that the inflation outcome in Denmark would have been substantially different if the Nationalbank had had an inflation target rather than an exchange rate target.

It is far from obvious that ending the exchange rate peg would lead to a better inflation outcome, while it is clear that it would have costs. One major cost would be to the businesses and investors who rely on the policy continuing in their hedging and pricing strategies. Another cost would be losing the credibility the Nationalbank has built around the policy over 40 years. A new target such as an inflation target could also be credible of course, but it would take time and effort to achieve. - Danske Bank