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BoE Chief Says Treasury's Funding To Strengthen Balance Sheet


Bank of England Governor Mark Carney said Treasury's GBP 1.2 billion capital injection announcement is a ground-breaking financial arrangement and this would make the balance sheet fit for purpose and the future.

At the Mansion House, Carney said late Thursday that the additional capital will significantly increase the amount of liquidity the BoE can provide through collateralized and market-wide facilities.

The bank had launched the Term Funding Scheme in August 2016 in order to reinforce the pass-through of the reduction in interest rate to 0.25 percent. The BoE required an indemnity from the treasury for such loans.

Carney said the latest additional capital means the Monetary Policy Committee could, if necessary, re-launch the TFS in future on the Bank's balance sheet, cementing 0 percent as the lower bound.

Moreover, the bank can provide funds without needing an indemnity from the treasury to more than half a trillion pounds, he noted.

Earlier on Thursday, the Bank updated its guidance on unwinding its asset purchases. The MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5 percent.

As asset purchases unwind, decisions on Bank Rate will take into account any impact of changes in the stock of purchased assets on overall monetary conditions in order to achieve the inflation target, Carney added.

The assets purchased by the MPC are currently indemnified by HM Treasury. Once the asset purchase facility has been unwound, the Bank will decide what assets to hold to back its liabilities, said Carney.

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