The British government today officially launched quantitative easing - effectively printing money - to pull the economy out of recession, and bought £2 billion of government bonds in a move that may soon be copied around the world.
The central bank's initial offer - the first part of a 75 billion pound asset-buying programme - to non-bank institutions like pension funds earlier on Wednesday met with no takers but it was able to fulfil its buying quota of 2 billion pounds from banks in a second so-called reverse auction.
Banks had offered to sell £10.5 billion of gilts.
"It went well, they got over £10 billion pounds in bids so that's a cover of 5.25," said Jason Simpson of RBS.
Central banks around the world will be eager to see how successful the bank's efforts are in bringing down market interest rates, boosting demand and encouraging banks to lend.
Quantitative easing, or boosting the money supply, had only really been practised in Japan before in the early part of this decade as part of the country's long battle against deflation, but met with limited success.
The Wall Street Journalreported that the Federal Reserve had been struck by the early apparent success of the Bank's quantitative easing plans -- 10-year gilt yields have fallen to record lows since it announced the purchases last week -- and the U.S. central bank could move towards a similar effort.
But as gilt yields have plummeted, corporate bond spreads have widened, leading some analysts to question whether the Bank should be paying more attention to bringing down the cost of corporate borrowing.
Reuters