Bank of England Launches New Long-term Repo Operations

The Bank of England (BoE) is launching new regular market-wide Indexed long-term repo (ILTR) operations. The BoE said the move represented the next step in its new approach to providing liquidity insurance designed to increase both its availability and flexibility of liquidity insurance,
as announced by the governor, Mark Carney
,last October.

The Bank’s current ILTR operations will be replaced by new ILTR auctions that provide more liquidity at cheaper rates, longer maturities and against a wider range of collateral than previously available. An important innovation in the design of the ILTR auctions is that they are responsive to market conditions, with the amount of liquidity available rising automatically if there is greater demand, in contrast to fixed-size or full allotment auctions used previously

The first ILTR operation under the revised format is scheduled next month for 11 February. Demand for liquidity in the ILTR will depend on market conditions. Currently the sterling system has abundant liquidity in aggregate, reflecting in large part the impact of the ‘quantitative easing’ programme (QE) mandated by the monetary policy committee (MPC), so initial usage may be limited. As the Governor said in his October speech,“we are building a liquidity framework for the markets of tomorrow”.

Further details on the approach are provided in
‘Market Notice: Indexed Long-Term Repo operations and Contingent Term Repo Facility’
and an updated edition of the
BoE’s ‘Red Book’
, which provides a comprehensive description of the sterling monetary framework (SMF).

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