Bank of England buyback demand rises to record £21bn

LONDON (Reuters) – British banks received a record 21.347 billion pounds ($27.01 billion) in funds from the Bank of England in their weekly short-term buyback on Thursday, marking the 11th time in the last 14 buybacks that usage set a new record. high.

Use of the repo, which allows banks to temporarily borrow money from the BoE in exchange for government bonds they hold, has been rising steadily since March.

The repo was launched in October 2022 by the BoE to ensure overnight interbank lending rates remain close to its official bank rate, while draining money from the financial system through its quantitative tightening on bond sales.

The central bank is reducing its bond holdings by £100 billion a year and writing off the cash reserves it receives for them, after buying £875 billion worth of bonds between 2009 and 2021 with newly created money. .

Governor Andrew Bailey said in a speech last month that he did not see the increased use of short-term repurchase agreements as a sign that the British financial system was close to the minimum level of reserves that banks wanted to maintain.

Bailey said this “minimum preferred reserve range” was likely to be between £345 billion and £490 billion. Current reserves held at the BoE are around £760 billion.

When reserves fall to their minimum level, the BoE will likely need to expand its market operations and rethink the pace of asset sales, Bailey said.

($1 = 0.7905 pounds)

(Reporting by David Milliken; Editing by Anil D’Silva)