LONDON (Reuters) -Bank of England Governor Andrew Bailey and British finance minister Rachel Reeves have raised the prospect of the BoE making money from its new system for providing reserves to banks after racking up huge losses from its bond-buying programme.
The BoE has increasingly used its repo facilities as it sells down the holdings of government bonds that it began to buy as a stimulus measure during the global financial crisis of 2008-09 and which it continued to use until 2022.
The long-run cost of the bond purchase programme could be around 120 billion pounds ($158.51 billion) as rising interest rates push down the value of the bonds. The government foots the bill for losses incurred by the BoE.
In an exchange of letters published on Tuesday, Bailey and Reeves said the new, repo-based system was likely to prove less damaging for the public finances.
“Dependent on the evolution of demand for reserves and the design of the Bank’s repo facilities, the transition to repo is expected to generate income for the Bank and broader public sector,” Reeves said in her letter to Bailey.
The BoE governor said he expected the change to be profitable for the central bank.
“As banks will be paying for the reserves they demand in this framework, we expect that our operations will generate positive income in the future,” he said.
($1 = 0.7571 pounds)
(Writing by William Schomberg, editing by Andy Bruce)
