Home / Business and Economy / Bank of England's Repo Borrowing Hits 3-Month Low
Bank of England's Repo Borrowing Hits 3-Month Low
18 Nov
Summary
- Bank of England's indexed long-term repo use fell to lowest in almost three months.
- Lenders borrowed 1.280 billion pounds, a significant drop from the previous week.
- This decrease follows the central bank's recent increase in borrowing costs.
The Bank of England witnessed a substantial decrease in the usage of its weekly indexed long-term repo facility. On Tuesday, British-based lenders secured only 1.280 billion pounds of six-month funds, marking the lowest borrowing amount seen since late August. This figure represents a significant drop from the 6.073 billion pounds borrowed in the preceding week.
The decline in activity is directly attributed to the central bank's decision to increase the cost of borrowing from this facility. Specifically, the spread for banks utilizing the highest-quality collateral at the indexed long-term repo was raised to 3 basis points over the Bank Rate, up from zero. This adjustment aims to rebalance incentives between different liquidity provision facilities.
This strategic shift by the BoE, which is unwinding its quantitative easing program and moving towards a repo-led liquidity model, appears to be influencing lender behavior. While the short-term repo facility, offering seven-day funds, saw significant uptake, the increased cost of the indexed long-term repo has demonstrably deterred borrowing.
