Bank of England Provides Record-Breaking Funds to British Banks Through Short-Term Repo

British banks received a record 21.347 billion pounds from the Bank of England in a recent repo, marking the 11th record high usage.

In a significant development, British banks have received a staggering 21.347 billion pounds ($27.01 billion) in funds from the Bank of England at its weekly short-term repo on Thursday. This marks the 11th occasion in the last 14 repos that usage has reached a new record high, reflecting the increasing reliance on this financial instrument.

Steady Increase in Usage

Since the launch of the repo in October 2022, there has been a steady climb in its usage by banks to temporarily borrow cash from the BoE in exchange for government bonds they hold. This trend has been particularly notable since March, indicating a growing dependence on this form of financial support.

BoE's Quantitative Tightening Measures

The repo was initiated by the BoE to ensure overnight interbank lending rates remain close to its official Bank Rate while it withdraws cash from the financial system through its quantitative tightening bond sales. As part of these measures, the central bank is decreasing its bond holdings by 100 billion pounds annually and canceling the cash reserves it receives for them.

Reserves and Market Operations

Governor Andrew Bailey indicated that he does not consider the rising usage of the short-term repo as a sign that Britain's financial system is nearing the minimum level of reserves desired by banks. Bailey mentioned a "preferred minimum range of reserves" estimated to be between 345 billion pounds and 490 billion pounds, with current reserves held at the BoE standing at approximately 760 billion pounds. However, Bailey highlighted the likelihood of the need for BoE to expand its market operations and reconsider the pace of asset sales once reserves deplete to their minimum level.

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