In addition, many have also emphasized an indirect effect through a “signaling channel.” By helping to shape expectations about the expected future path of the federal funds rate, asset purchases help reinforce forward guidance. Thus, asset purchases can affect longer-run interest rates by lowering the expected path of short-term rates as well as by reducing the term premium of long-duration securities.
The short-term repos are conducted at the Bank Rate.3 The BoE also conducts outright OMO to influence liquidity conditions which are unlikely to be reversed quickly. Modulation of reserve supply by the BoE at the aggregate level, however, does not always ensure that the average reserves holding of an individual bank is within the target range.