Bank steps up pace of quantitative easing

By David Milliken

LONDON (Reuters) - The Bank of England stepped up its quantitative easing programme on Thursday, saying it would buy 5 billion pounds of gilts next week after investors eagerly offloaded 2 billion pounds worth on Wednesday.

The Bank has committed to buy 75 billion pounds of assets, mostly gilts, from investors using newly created money, to increase the money supply and encourage banks to lend more freely to firms and consumers and ease the recession.

The central bank said it would buy 2 billion pounds of longer-dated gilts with maturities ranging from 2020-2032 on March 16, and a further 3 billion pounds of shorter-dated gilts with maturities of 2014-2019 on March 18.

At its first reverse auction to buy gilts on Wednesday, investors wanted to sell more than 10 billion pounds of gilts to the Bank of England, five times what it was bidding to buy.

"I think what we saw yesterday was the BoE testing the water. They're comfortable enough to push the market a bit further next week," said Sean Maloney, a strategist at Nomura International.

The Bank said last week that it would confine its purchases to conventional gilts with remaining maturities of 5-25 years, and Monday's auction extends the maturities the Bank was buying out to 23 years from Wednesday's 2014-18 range.

Richard McGuire, strategist at RBC Capital Markets, said the BoE had further scope to expand its weekly gilt purchases, but probably wanted to avoid paying over the odds.

"While the Bank is relatively price insensitive, that doesn't mean it's completely blind to the cost of these bonds," he said.