Market News

LONDON (Reuters) - The Bank of England allotted a record 30.359 billion pounds ($39 billion) on Thursday in its weekly short-term repo, which is designed to smooth out volatility in sterling lending markets as it unwinds its quantitative easing programme.

Sums allotted in the repo have been hitting fresh records on an almost weekly basis since April. Last week the BoE allotted 29.076 billion pounds of 7-day funds at the repo.

On Monday the BoE's executive director for markets, Victoria Saporta, welcomed the increased use of the facility, which she said reflected banks' increased familiarity with it and the ease of rolling over financing.

Repos, or repurchase agreements, allow banks to temporarily exchange government bonds they own for central bank cash, helping to keep market interest rates in line with the BoE's policy rate.

Saporta said the time when banks would regularly need to use BoE repos to obtain cash was "firmly within sight", as the BoE was reducing its government bond holdings at a rate of 100 billion pounds a year, draining cash from the market.

Adding further pressure was the end of a separate BoE scheme which offered banks cheap credit to lend to small businesses during the COVID-19 pandemic.

The BoE also wanted to expand usage of its Indexed Long-Term Repo, Saporta said. The ILTR offers cash for six-month terms against a wider range of collateral than the Short-Term Repo, but is currently barely used by banks.

($1 = 0.7759 pounds)

(Reporting by David Milliken; editing by William James)