The British pound sterling fell to an all-time low against US dollars on September 26th. On Monday, the Bank of England (BOE), announced that it would stop its tightening policy in monetary terms and buy long-dated bonds. Two weeks later, on Monday the BOE announced that it would double the amount of its debt buybacks through large amounts of gilt-edged securities.
BOE Doubles Bond Purchases; UK Central Bank Introduces Temporary and Permanent Repo Programs To Enhance Liquidity
16 days ago, the British pound sterling reached a lifetime low against the greenback and the central bank of England decided to step into the fray and bolster the U.K.’s economy with stimulus programs. Bitcoin.com News published a report on September 28 that said the Bank of England had stopped monetary tightening. It also stated it would purchase old-dated gilts (also known as bonds).
After two weeks, the BOE made a change of heart and increased its purchases of gilt-edged securities. On Monday, the BOE announced it would increase bond purchasing and told the public that on October 14, the central bank would reveal measures that will bring an “orderly end” to the latest quantitive easing practices.
Japanese bonds: Without the BoJ printing Yen, they are worthless.
The BoE can intervene with printed Pounds to make Gilts worthless.
Italian bonds without ECB backingstopping them with printed Euros are worthless
Global Fiats: Going down to zero
— Stack Hodler (@stackhodler) October 9, 2022
“To date, the Bank has carried out 8 daily auctions, offering to buy up to £40 billion, and has made around £5 billion of bond purchases,” the BOE reported on Monday. “The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5 billion in each auction.” In addition to the long-term gilt purchases, BOE created a new repo facility in order to help with liquidity issues. The bank has dubbed the repo as 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, and also a wider range of collateral than normally eligible under the SMF, such as corporate bond collateral,” the central bank’s announcement details. A short-term repo was also launched by the bank last week.
*BOE SAYS IT PURCHASED 786.300 MLN PNDS OF GILTS IN BUYING OPERATION
— zerohedge (@zerohedge) October 7, 2022
“[The] permanent facility will provide additional liquidity to banks against SMF eligible collateral, including index-linked gilts, and so support their lending to LDI counterparties,” the BOE detailed on Monday. “Liquidity is also available through the Bank’s new permanent Short Term Repo facility, launched last week, which offers an unlimited quantity of reserves at Bank Rate each Thursday,” the central bank added.
The British pound sterling (GBP), while showing some improvement, is still below the U.S. dollars by 0.13% and 2.56% respectively over the last 24 hours. The GBP’s annual loss against the U.S. dollars is 18.23%. The latest announcement stemming from the BOE showcases the central bank’s persistence toward intervening in financial markets “on whatever scale necessary” in order to “restore orderly market conditions.”
Furthermore, amid the BOE’s latest decision to double gilt purchases, the U.K.’s finance minister Kwasi Kwarteng plans to release the medium-term fiscal plan three weeks before the scheduled date, according to His Majesty’s Treasury (HM Treasury).
Do you agree with the BOE’s decision to double the volume of gilt purchases? This is in an effort to support the U.K. economic recovery. Please comment below to let us know your thoughts on this topic.
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