MNI BRIEF: Expect Significant Step-up In Repo Ops - BOE Bailey

Central bank balances will shrink to the point where it meets the minimum level desired by commercial banks and other counterparties, Bank of England Governor Andrew Bailey said in a speech at the LSE, noting an inevitablity that there will be a significant increase in repo operations to meet demand. (see MNI UK Deep Dive: BOE Long-Term QT and FQ2 DMO Operations)

As central bank reserves are withdrawn, in part through quantitative tightening, the preferred minimum range of reserves (PMRR) will be hit, and a good guess is it will be around GBP345 to GBP490 billion, but will change over time, Bailey said.

At PMRR (earlier Tuesday the IMF said it could be hit in 2025) the BOE will need to decide how to back central bank reserves and whether to provide high-quality liquid assets through its repo facilities alone or by holding additional gilts.