BoE Provides Liquidity Support
The UK’s Finance Minister Osborne announced that the government and the BoE will jointly launch a new bank funding scheme with the aim of boosting bank lending to the real economy. The intention is to provide subsidised funding to banks for a period of several years at below market rates. Funding availability will be linked to a bank’s performance at maintaining or expanding their lending activities. Although the details are yet to be finalised, BoE Governor King said he hopes the scheme will be up and running “within a few weeks”. In addition, King announced that a separate facility known as the Extended Collateral Term Repo (ECTR) Facility – which was first unveiled in December – would now be activated. The bank will publish further details on this later on Friday but for now we note that the facility is similar to the LTRO system operated by the ECB, except that fixed amounts of liquidity – at least GBP 5bn per month – will be offered, rather than the ECB’s approach of providing as much liquidity as the banking system requests. Finally, referring to the prospect of further asset purchases, King noted that “the case for further monetary easing is growing”. We believe that the GBP impact will be mixed as the pro-growth positives are counterbalanced by the currency-negative effect due to expansion of the central bank’s balance sheet. Elsewhere, the situation in the Eurozone eased a little with the sovereign bond markets registering moderate gains. Spain, however, was an exception with its yields continuing to rise after Moody’s cut its rating three notches to Baa3 and put it on review for further downgrade to junk status. In the US, the jobless claims rose 6K to 386K in the week of June 9. The core CPI rose 2.3% y/y in May in line with expectations and CPI fell 0.3% m/m pulled down mainly by oil prices. We expect the BoJ to make no change to policy settings at today’s policy meeting. The BoJ however is likely to further loosen its monetary policy in its next meeting in July, when it is due to review its CPI outlook. Elsewhere, newswires suggested that G20 central banks are preparing for coordinated action to provide liquidity if needed after the Greek elections.
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