if the assessment is based on a fixed longterm rate of 2 per cent, it does not constitute much of a stress test. a variable rate of interest could soon rise above that level. either the credit institution should apply a more severe stress test, or it should actually grant a fixed rate mortgage loan. bis central bankers ’ speeches * * * the danish economy is in an upswing. growth has not been impressive, but it has been clearly visible if we adopt a slightly broader perspective than merely gdp growth. employment is picking up, house prices are rising and there is solid growth in real gdp net of oil extraction and in the gross national product, which includes the net return on external assets. we are seeing growth because the foundations are in place. denmark is competitive, so exports can begin to fuel the economy. and household finances have become more balanced after the housing bubble in the 2000s. in addition, three other factors are boosting growth strongly. firstly, interest rates have fallen by more than we had expected. at the current very low level of interest rates, monetary policy provides a strong growth impulse – globally and in denmark. secondly, the effective krone rate has weakened since the autumn in step with the weakening of the euro against the dollar. combined with the prospect of stronger growth abroad, this provides good opportunities for increasing exports. thirdly, the low oil prices entail large cost savings for firms and households. this will further stimulate growth, both in denmark and among our major trading partners. the fall in oil prices has pushed inflation down towards zero. but many prices are still rising, wage growth is accelerating and the lower effective krone rate will exert upward pressure on import prices, so we are not heading towards deflation. the oil price fall is in fact good for the economy. against that background, danmarks nationalbank ’ s new projection operates with growth at a higher level this year and in the coming years. gdp growth is expected to rise from 1 per cent last year to around 2 per cent this year and the next couple of years. with this growth outlook, all spare resources in the economy will have been absorbed within a few years. if we are not to face capacity problems, both the labour market and fiscal policy must be geared for this development. firstly, fiscal policy should take into account the strong expansionary forces currently at work. in this situation is it not expedient to continue to conduct fiscal policy very close to the limits, as has been the case

exchange market. and compared with previous episodes of pressure against the krone, intervention has played a greater role this time. but it also makes a great difference whether there is upward or downward pressure on the krone. when there is upward pressure, danmarks nationalbank sells kroner. we have plenty of those. so in a situation with upward pressure on the krone, danmarks nationalbank can sell unlimited amounts of kroner. the possibility of unlimited intervention also means that assistance from the ecb is not relevant in the defence of the krone when the pressure is towards a strengthening. despite the unusual volume of intervention, danmarks nationalbank has applied a wellknown reaction function by first intervening in the foreign exchange market and then adjusting interest rates in response to the capital inflows. it has been important for us to stick to this reaction function, one reason being that in a normal situation it is the banks that carry out “ stabilising speculation ”. when kroner are inexpensive, the banks build up stocks of kroner, and when kroner are ex - pensive they do the opposite – they sell kroner and purchase foreign exchange. bis central bankers ’ speeches when the situation is not normal, the banks ’ position is typically around zero, and danmarks nationalbank absorbs the net shocks in the foreign exchange market. so danmarks nationalbank has applied its usual reaction function. this gives the banks a basis for gradually resuming their self - stabilising speculation as the situation normalises. since the second half of february, the foreign exchange market has been relatively calm. the very low level of interest rates in denmark means that danmarks nationalbank profits from the foreign exchange reserve : the amounts in euro included in the reserve accrue interest at a higher rate than that at which the banks ’ deposits in kroner are remunerated. so danmarks nationalbank is strongly positioned in a situation with upward pressure on the krone. our patience knows no limits. at the same time, we make sure that it is costly for investors to speculate against the fixed exchange rate policy. denmark has posted current account surpluses for some years and has built up substantial net foreign assets. this makes it necessary to export private capital on a current basis. viewed in isolation, this points to a lower yield spread to the euro area in future compared with what we have previously seen, but also to the possibility that situations with upward pressure on the