LONDON (Reuters) - The Bank of England gave notice on Tuesday that it would stop buying short-term debt from companies which had trouble raising finance due to COVID-19 after March 2021, saying the programme did not need to be extended.
The Covid Corporate Financing Facility (CCFF) was one of the first measures taken by the BoE to support the economy in March, and came alongside 200 billion pounds ($255 billion) of bond purchases and a cut in interest rates to a record-low 0.1%.
While the BoE is nowhere near raising interest rates or reversing bond purchases, it said the CCFF - which now holds 16.991 billion pounds of short-term debt known as commercial paper - will have served its purpose by early next year.
“Although the magnitude of the economic impact of COVID-19 remains uncertain, activity has been supported by the fiscal and monetary policy actions introduced,” the BoE said.
“The CCFF has helped eligible businesses bridge COVID-19 related temporary disruption to their cash flows,” it added.
Most purchases under the programme, which is open to companies which had an investment-grade credit rating or similar before the pandemic, came during its first few weeks.
Financing conditions are now easier for large companies than they were during the initial weeks of the pandemic, when there was significant volatility on financial markets.
The CCFF will stop buying new commercial paper on March 22, as planned when the scheme was launched, and will close to new companies on Dec. 31 this year. Under the terms of the scheme, the BoE must give six months’ notice of its closure.
Businesses that have sold debt to the BoE which will not be repaid until after May 19, 2021 face restrictions on executive pay and dividends.
The changes do not affect a separate BoE stimulus programme which can buy and hold up to 20 billion pounds of corporate bonds.
($1 = 0.7835 pounds)
Reporting by David Milliken, editing by Andy Bruce
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