After the British pound hit an all-time low against the U.S. dollar on September 26, the Bank of England (BOE) announced it would suspend its tight monetary policy and begin purchasing long-term bonds again. Nearly two weeks later, the BOE detailed on Monday that it would purchase a large amount of gilts (bonds) and double the size of its purchases of government bonds.
BOE doubles bond purchases, Bank of England adds new temporary and permanent repo programs to bolster liquidity
16 days ago, sterling hit a lifetime low against the greenback, and the British central bank is using stimulus to decided to step up the fight to strengthen it.On September 28, Bitcoin.com News reported that the Bank of England decided to stop tightening monetary policy and said it would begin buying long-term gilts, known as bonds.
Two weeks later, the BOE changed its mind and decided to double its efforts in terms of buying gilts. On Monday, the BOE announcedthat it would increase its bond purchasesand told the public that on October 14 the central bank would reveal measures that would bring an “orderly end” to its latest quantitative easing practice.
Japanese government bonds. Worthless unless the BOJ supports them with printed yen.
Gilts: Worthless without the BOJ printing pounds.
Italian bonds. worthless unless the ECB backs them up with printed euros.
Global Fits. Zero.
– Stack Hodler (@stackhodler) October 9, 2022
“To date, the Bank has conducted eight daily auctions, proposed purchases of up to 40 billion pounds and purchased about 5 billion pounds of bonds,” the BOE on Mondayreported.” The BOE said it is “prepared to deploy this unused capacity to increase the maximum size of the five remaining auctions from the current level of up to 5 billion pounds at each auction. In addition to the purchase of long-term gilts, the BOE has created a new repo facility to address liquidity issues. He named this repo the BOE’s “Temporary Expanded Collateral Repo Facility (TECRF).”
“Under these operations, (the BOE) will accept collateral eligible under the Sterling Monetary Framework (SMF), including index-linked gilts, as well as a wide range of collateral not normally eligible under the SMF, including corporate bond collateral,” the central bank announcement detailed. The bank further stated that it also plans to begin operating a permanent long-term repo and last week launched a short-term repo.
*BOE announces it has purchased 786.3 million pounds of gilts in a buy-op
– Zerohedge (zerohedge)
– Zerohedge (@zerohedge) . 10/07/2022
“This permanent facility will provide banks with additional liquidity against SMF-eligible collateral, including index-linked gilts, to support lending to LDI counterparties,” the BoE detailed Monday. The central bank added: “Liquidity is also available through the Bank’s new permanent short-term repo facility, launched last week, which provides unlimited reserves at bank rates every Thursday.”
Meanwhile, the British pound (GBP) showed some improvement against the US dollar, but is down 0.13% in the past 24 hours and 2.56% in the past five days. Since the beginning of the year, the GBP has fallen 18.23% against the USD. The BoE’s announcement demonstrated the central bank’s commitment to intervene in financial markets “on whatever scale is necessary” to “restore orderly market conditions.”
In addition, following the BoE’s decision to double its gilt purchases, UK Finance Minister Kwasi Kwarteng is scheduled to announce his medium-term fiscal plan three weeks earlier than the scheduled date, according to HM Treasury.
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