The success of Novo Nordisk A/S and other Danish drugmakers is forcing Denmark to keep interest rates lower, according to the country’s largest bank.
(Bloomberg) — The success of Novo Nordisk A/S and other Danish drugmakers is forcing Denmark to keep interest rates lower, according to the country’s largest bank.
There’s “a direct link” between the growing role of the pharmaceutical industry and a strengthening krone, which in turn widens the spread between Denmark’s key rate and that of the European Central Bank, Danske Bank A/S said in a note.
“It may seem strange that weight loss medicine affects interest rates in Denmark, but it does,” Jens Naervig Pedersen, a senior analyst at Danske, said by phone, referring to drugs such as Novo’s blockbuster Wegovy.
The Danish central bank, whose mandate is to peg the krone to the euro, has already raised borrowing costs less than the ECB in the past year to weaken its currency amid booming exports. This has created a 40 basis-point spread to the euro-area rate.
Meanwhile, Novo’s meteoric rise has pushed its market value above Denmark’s gross domestic product and made it Europe’s second-largest company by market value. The drugmaker last week raised its 2023 profit outlook amid booming demand for Wegovy.
Growth of the pharmaceutical industry will likely boost Denmark’s external balance even more and strengthen the krone, forcing the central bank to expand its foreign currency reserves and widen the interest-rate spread further over the medium term, Danske said in the note published on Wednesday.
The drug industry has boosted Danish GDP growth by almost 2 percentage points since the end of 2021, according to Sydbank A/S estimates, triggering worries the industry may conceal weaknesses elsewhere in the economy.
–With assistance from Ott Ummelas.
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