The Bank of England said it may start buying commercial paper next week through its asset purchase facility in measures to improve companies’ access to credit as interest rates approach zero.
The central bank said that from Feb. 13 it expects to acquire debt of companies that make a “material contribution to economic activity in the United Kingdom,” according to a statement today. It may also buy paper of U.K. companies with foreign parents, or of non-bank financial companies.
“The facility may operate for as long as the highly abnormal conditions in corporate credit markets persist and materially impair the financing of real economic activity,” the bank said. Officials are also considering buying corporate bonds in the secondary market, the statement said.
The announcement marks a shift away from the central bank’s conventional use of monetary policy after it cut the benchmark interest rate to a record low of 1 percent yesterday. Britain’s economy may shrink the most since the end of World War II this year as financial institutions ration credit to rebuild their balance sheets.
The bank said that commercial paper issued by non-financial companies will be eligible in principle if it is satisfied that they make a significant contribution to U flexcheck cash advance.K. corporate financing. Paper issued by leveraged investment vehicles won’t qualify. Companies will be eligible to use the facility even if they haven’t issued commercial paper yet.
Buying Power
The U.K. government last week gave the central bank authority to spend 50 billion pounds ($73 billion) on bonds and commercial paper. Chancellor of the Exchequer Alistair Darling directed Bank of England Governor Mervyn King to buy “high quality” securities.
The policy marks a first step toward so-called quantitative easing, raising the money supply to reduce its cost and prevent a downward spiral in the economy.
Commercial paper must have a minimum rating of at least A-3 at Moody’s Investors Service, P-3 at Standard & Poor’s or F-3 from Fitch. The bank is also consulting on buying corporate bonds in the secondary market.
The bank said it will buy from dealers in the primary market for commercial paper and may also buy it from holders of securities in the secondary market.
« Sharp expected to post first operating loss: report – SEC, Madoff to settle civil fraud case »
No comments yet.
Sorry, the comment form is closed at this time.
Powered by WordPress -- XHTML 1.0