Denmark Strikes $15 Billion Swap Agreement With ECB

By Tasneem Brogger

Oct. 27 (Bloomberg) -- The European Central Bank gave Denmark access to 12 billion euros ($15 billion) in funds as the ECB steps up efforts to help neighboring countries deal with the global financial crisis.

The currency swap facility with the Danish central bank will ``remain in place as long as needed'' and aims to ``improve liquidity in euro short-term markets,'' the Frankfurt-based ECB said in an e-mailed statement today.

The agreement will help Danish policy makers, whose sole mandate is to keep the krone pegged to the euro, draw on reserves to support their currency. Denmark is the third European country that the ECB has assisted after Hungary and Switzerland.

``I don't think this is happening because of anything specific to Denmark, it's just the contagion from the global situation,'' said Sunil Kapadia, an economist at UBS Ltd. in London. ``Banks in smaller currency areas could be more vulnerable, and that could hurt Denmark.''

The Danish central bank was forced to raise the key rate a second time this month on Oct. 24, bringing it to 5.5 percent, the highest level in eight years. The bank said the move was necessary after the krone came under pressure.

Denmark's benchmark interbank lending rate, the three-month CIBOR, today rose to an eight-year high of 6.4167 percent. That's despite a 35 billion kroner ($5.8 billion) bank rescue package passed by parliament earlier this month.

Denmark's reserves, which totaled 160.1 billion kroner ($26.7 billion) at the end of September, would rise to about 250 billion kroner including the swap facility announced today.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;