These dynamics are being closely watched by the Bank’s policymakers as they edge towards the lower end of what is known as the Preferred Minimum Range of Reserves (PMRR) – the level of reserves they believe is necessary to avoid dislocations in money markets. Analysts have suggested that this threshold may be reached sooner than anticipated, potentially by the second quarter of 2026.
Surge in repo facility usage
On Thursday, banks tapped the BoE’s repo facility for a record £70 billion, another stark reminder of the liquidity pressures building within the system. That figure dwarfs the typical weekly usage of the longer-term Indexed Long-Term Repo (ILTR), which has been drawing closer to just £1 billion.
In response, the BoE’s executive director for markets, Vicky Saporta, has encouraged banks to make greater and more routine use of longer-term central bank borrowing. “Firms must now fully consider the changing liquidity environment and their plans to source reserves within that,” she said in a recent speech in Helsinki.
From next week, the BoE will increase the weekly size of the ILTR from £25 billion to £35 billion, raising the central bank’s total liquidity provision capacity to £840 billion. The borrowing terms will also shift – with banks required to pay a spread of 0.03 percentage points over Bank Rate for high-quality collateral, and more for lower-grade assets.
“Firms should now be looking to use these facilities for routine liquidity management, not just as backstops,” Saporta added.