Monetary Policy in Denmark. Niels Lynggaard Hansen Danmarks Nationalbank May 2010

Transcription

1 Monetary Policy in Denmark Niels Lynggaard Hansen Danmarks Nationalbank May 2010

2 Agenda Background to Denmark s fixedexchange-rate policy Monetary policy in practice The financial crisis and unconventional measures Recent monetary trends 1

3 Agenda Background to Denmark s fixedexchange-rate policy Monetary policy in practice The financial crisis and unconventional measures Recent monetary trends 2

4 Danmarks Nationalbank and the government Danmarks Nationalbank is responsible for the monetary policy The government is responsible for the framework for the exchange-rate policy in consultation with Danmarks Nationalbank The monetary policy is determined independently of the government 3

5 How to control inflation Instrument Intermediate target Final target Monetarypolicy interest rate Exchange rate Inflation rate Stable prices Danmarks Nationalbank s final target is to ensure stable prices This is done by keeping the exchange rate stable against the euro (intermediate target) 4

6 Fixed-exchange-rate policy Small, open economy Free movement of capital Credible fixed exchange rate regime UIP : i DKK = i EUR + e + RP PPP : p DKK = p EUR + e 5

7 Exchange rates vis-á-vis euro and fluctuation bands 6

8 Exchange rates vis-á-vis euro EUR/DKK, EUR/SEK EUR/USD, EUR/GBP 1,7 1,5 1,3 1,1 0,9 0, ,5 EUR/DKK EUR/SEK EUR/GBP (right axis) EUR/USD (right axis) 7

9 Key monetary-policy interest rates Pct ECB, Main Refinancing rate Sweden, Lending Rate USA, Feds Funds Target Rate Denmark, Lending Rate UK, Bank Rate 8

10 Government budget balance 9

11 Current account balance 10

12 10-year bond yield in Denmark and Germany 11

13 Bilateral exchange rate and relative prices between Denmark and Germany 12

14 Inflation in Denmark and Germany (euro area) Per cent st oil crisis 2nd oil crisis Change to fixed exchange-rate policy Danish inflation German inflation Euroarea inflation 13

15 Inflation and the economic activity in the nordic region 14

16 Agenda Background to Denmark s fixedexchange-rate policy Monetary policy in practice The financial crisis and unconventional measures Recent monetary trends 15

17 Fixed-exchange-rate policy The central bank needs to be ready to take interest-rate decisions at more or less any time. To succeed: No ambiguity with regard to fulfilment of the target. 16

18 Monetary-Policy Instruments Monetary-policy counterparties: banks mortgage-credit institutes Ordinary weekly open market operations ("open window ) borrow funds for 7 days against securities as collateral deposit funds for 7 days by purchasing certificates of deposit Standing facilities current accounts, in which the counterparties can place liquidity. upper limit of 26.1 kr. billion to prevent speculation Extraordinary open market operations sale and buy-back of certificates of deposit 17

19 Portfolio investments and the exchange rate DKK pr. euro 7,47 7,46 7,45 7,44 7,43 7, Kr. billion Exchange rate Portfolio investment (net capital inflow) 12 months sum, right axis 18

20 Intervention and the exchange rate DKK pr. euro 7,47 7,46 7,45 7,44 7,43 7,42 Kr. billion ,41-80 jan jan jan jan jan jan jan jan jan jan jan Intervention, right axis Exchange rate 19

21 Number of days with intervention Number of intervention days 20

22 Example: Monetary-policy in practice in 2005/2006 Kroner per 100 euro 744,0 744,5 Kr. million , ,5 746,0 746,5 747,0 747,5 748,0 748,5 749,0 November December January February March April Net foreign-exchange purchases EUR/DKK Danmarks Nationalbank's lending rate Note: No axis for the lending rate. The increase is 0,10 percentage points. 21

23 Monetary-policy interest rates Pct ECB's official lending rate (Main refinancing operations) Danmarks Nationalbank's lending rate 22

24 Agenda Background to Denmark s fixedexchange-rate policy Monetary policy in practice The financial crisis and unconventional measures Recent monetary trends 23

25 Liquidity exchange under normal condition and in a situation with turmoil 24

26 3-month interest-rate spread between Denmark and the euro area Pct. 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5 jan-2007 jul-2007 jan-2008 jul-2008 jan-2009 jul-2009 jan-2010 Uncollateralised lending Overnight interest-rate swaps FX swaps Repo lending 25

27 Temporary credit facilities Temporary expansion of collateral basis at Danmarks Nationalbank Temporary credit facility on the basis of excess capital edequacy Both were introduced in autumn 2008 Both are announced to expire 26 February

28 Swap lines with the Fed and ECB Lack of short-term dollar and euro liquidity among banks and mortgage-credit institutes in Denmark Swap lines were established in the autumn of 2008 Since 25 November 2009 the Danish banks and credit institutes have not had loans in foreign currency at Danmarks Nationalbank The arrangement with the Fed expired 1 February 2010 The arrangement with the ECB still runs 27

29 Significant increase in the foreignexchange reserves Kr. billion

30 The Danish Act on Financial Stability (Bank Rescue Package I) Introduced by the Danish parliament in the end of September 2008 Objective: Restore confidence in the financial markets banks able to borrow in the interbank market again Fully covering all claims of depositors and other unsecured creditors Expires 30 September

31 Exit from Bank Rescue Package I February 2009: Opportunity to purchase a full government guarantee for debt with a maturity of up to three years Introduced to facilitate the transition to normal market conditions Decided by the Danish Parliament as a part of the Credit Package (Bank Rescue Package II) So far 22 banks 81 kr. billion 30

32 Agenda Background to Denmark s fixedexchange-rate policy Monetary policy in practice The financial crisis and unconventional measures Recent monetary trends 31

33 The discount rate and the bank s average interest rates Percentage Discount rate Lending rate, corporate Lendring rate, households Deposit rate, corporate Deposit rate, households 32

34 The bank s interest-rate margin Percentage point Households Corporate sector 33

35 Yield on mortgage-credit bonds in Denmark Percentage jan jul jan jul jan jul jan year fixed bullets Long-term mortgage-credit bonds 34

36 Interest-rate spreads between Denmark and the euro area Pct. 2,5 2,0 1,5 1,0 0,5 0,0-0, Monetary-policy interest-rate spread Uncollateralised interest rates Collateralised interest rates 35

37 Danmarks Nationalbank s balance sheet Kr. billions Interest margin -400 jan 07 jul 07 jan 08 jul 08 jan 09 jul 09 jan 10 Monetary-policy loans Loans in foreign currency Current-account deposits Certificates of deposit Net position 36

38 Introduction of interest margin in Danmarks Nationalbank Purpose Decrease the monetary counterparties use of Danmarks Nationalbank s facilities Spread between Danmarks Nationalbank s lending rate and rate of interest on certificates of deposit 8 June 2009: 0.10 percentage point 29 September 2009: 0.25 percentage point 26 March 2010: 0.35 percentage point 37

39 Interest margin in Danmarks Nationalbank Pct. 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 maj-10 apr-10 mar-10 feb-10 jan-10 dec-09 nov-09 okt-09 sep-09 aug-09 jul-09 jun-09 Interest on certificates of deposit Lending rate Interest margin 38