How Bank of England Monetary Policy Isn’t Working as Intended
- Gap between secured funding and policy rates keeps widening
- Dislocation is making it harder to fight inflation, ING says
A commuter passes the Bank of England in the City of London.
Photographer: Jason Alden/BloombergThis article is for subscribers only.
The cost of borrowing sterling against high quality collateral is sliding away from the Bank of England’s key rate, a distortion that risks impeding the central bank’s ability to tighten policy effectively.
The price investors pay to borrow cash overnight by pledging gilts to counterparties, the so-called Repurchase Overnight Index Average or RONIA, is trading 43 basis points below the BOE’s rate. That’s a record discount after excluding quarter- and year-end aberrations, when regulatory requirements tend to distort funding markets.