Business World

Wednesday 22 November 2017

Bank of England to pump money into markets amid Brexit fears

UK Prime Minister David Cameron
UK Prime Minister David Cameron

The Bank of England took its first concrete step to keep markets running smoothly when Britain votes on whether to remain a member of the European Union, saying it would offer extra funds to banks as the vote nears.

The central bank will hold three additional indexed long-term repo (ILTR) operations in the weeks around the June 23 referendum. The operations will provide six-month finance to banks, building societies and brokers in return for collateral and interest.

"The Bank will continue to monitor market conditions carefully and keep its operations under review," the central bank said.

Sterling has weakened since the start of the year, which currency strategists say is partly because Britain may vote to leave the EU, and demand has grown for insurance against currency volatility.

The BoE also prepared to hold extra ILTRs if Scotland voted for independence in 2014, though it did not make the preparations public until after the event.

Governor Mark Carney last month said the BoE was making contingency plans for the EU referendum, but gave no details and said the central bank's working assumption was that the status quo continues.

The BoE introduced ILTRs in 2010 to help avoid a repeat of the liquidity shortages that occurred during the 2007-08 financial crisis. The operations normally take place once a month and typically attract little demand.

The BoE altered the ILTRs in 2014 so they vary in size to meet demand, rather than offering fixed amounts, and allow banks to offer lower-quality collateral if they pay a higher interest rate.

Reuters

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