Sterling Money Market Operations
Open Market Operations
The Bank uses open market operations (OMOs) to provide sufficient central bank money to the market to enable reserves scheme members in aggregate to meet their targets. OMOs comprise short-term repos, long-term repos and outright purchases of high-quality bonds.
Short-term repo OMOs are held weekly, with an overnight-maturity fine tune on the final day of the maintenance period. The size of the weekly OMO is varied to offset expected weekly changes in banknotes in circulation and other sterling flows across the Bank's balance sheet (so-called autonomous factors). Day to day, reserve averaging absorbs the short-term fluctuations that occur across the Bank's balance sheet. The Bank currently provides long-term financing to the banking system through long-term repos at market rates determined in monthly OMOs; and plans in due course to provide long-term financing through regular OMOs to purchase conventional gilts and high-quality foreign currency bonds, with the cash flows swapped into sterling (outright purchases).
Short-term open market operations
In normal circumstances, the Bank's weekly OMOs take place on Thursdays and have a maturity of one week. They are conducted at the Bank's official rate.
On the days when the MPC makes scheduled interest-rate decisions, the Bank undertakes its weekly short-term OMO at 12.15pm, in order to follow the MPC's noon announcement. On days when there are no scheduled interest-rate announcements, the Bank undertakes its weekly, short-term OMO at 10am. Short-term OMOs are settled same day.
Fine-tuning OMOs at the end of the maintenance period
The Bank conducts, as a matter of routine, an overnight-maturity fine-tuning OMO at the end of each reserves maintenance period (ordinarily the Wednesday preceding the Thursday MPC decision) to ensure that the banking system's net need for central banking money, taking into account the amount required for reserve scheme banks to achieve their aggregate reserve targets, is provided as precisely as possible. These operations take place at 10am. They are for same-day settlement.
The Bank is prepared either to provide or drain central bank money at the Bank's official rate in this operation and both are equally likely on the assumption that errors in the the Bank's liquidity forecast are unbiased.
Open market operations to provide longer-term financing
The Bank conducts long-term repo OMOs monthly, usually at 10am on a Tuesday mid-month. The Bank may lend at 3-, 6-, 9- and 12- month maturities. These OMOs are variable-rate tenders open to the Bank's OMO counterparties. The Bank is therefore a price-taker and allocates the funds offered to successful bidders at the rate(s) that they tender. Settlement of long-term repo operations takes place on the day following the OMO (T+1).
