LONDON, Dec 11 (Reuters) – Bank of England Governor Andrew Bailey said eliminating interest rate risk from the public sector was a key goal of its efforts to shrink its balance sheet, in an interview broadcast on Thursday.
Through a process known as quantitative tightening, the BoE is unwinding hundreds of billion pounds of reserves that it created to finance government bond purchases between 2009 and 2021 in efforts to stimulate the economy, by allowing those gilts to mature and also by selling them.
This marks a shift toward a model where banks’ demand for reserves – accessed through the BoE’s repo lending facilities – determines the level of central bank reserves.
“I think from the point of view of the of the public balance sheets in this country, we should not have interest rate risk on our balance sheet,” Bailey said in Financial Times Global Boardroom interview that took place on November 24.
“So a repo-backed stock of reserves puts the interest rate risk into the private sector, which is where it should be.”
(Reporting by David Milliken, Writing by Andy Bruce)
