Usage of the repo, which allows banks to temporarily borrow cash from the BoE in exchange for government bonds they hold, has climbed steadily since March.
The repo was launched in October 2022 by the BoE to ensure overnight interbank lending rates stay close to its official Bank Rate while it drains cash from the financial system through its quantitative tightening bond sales.
The central bank is reducing its bond holdings by 100 billion pounds a year and cancelling the cash reserves it receives for them, after buying 875 billion pounds of bonds between 2009 and 2021 with newly created cash.
Governor Andrew Bailey said in a speech last month that he did not view rising usage of the short-term repo as a sign that Britain’s financial system was close to the minimum level of reserves which banks wanted to hold.
Bailey said this “preferred minimum range of reserves” was probably between 345 billion pounds and 490 billion pounds. Current reserves held at the BoE stand at around 760 billion pounds.
Once reserves fall to their minimum level, the BoE was likely to need to expand its market operations and rethink the pace of asset sales, Bailey said.
($1 = 0.7905 pounds)
Source: Economy - investing.com
