The Bank has eight fixed-action dates a year. On those dates the Bank may decide to change its target for the overnight interest rate, although the Bank reserves the right to move between dates “in the event of extraordinary circumstances”. Whether a change is enacted or not, a statement is issued that explains the factors that led to the decision including an assessment of the risks in the period ahead. To further explain the Bank’s position, a semi-annual Monetary Policy Report is published in May and November, with Updates published in February and August.
The overnight interest rate is the rate at which participants in the money market borrow and lend one-day funds, and is the interest rate over which the Bank exerts the most control. On fixed-action dates, the statement and the decision on rates is released at about 9:00 am.
To maintain control of the overnight rate within a 50 basis point operating band, the Bank will enter into Special Purchase and Resale Agreements (SPRA) and Sale and Repurchase Agreements (SRA). In SPRAs, or repos, the Bank buys securities from a dealer and agrees to sell them back the next day. They are used when the overnight rate rises above the target. In SRAs, or reverse repos, the Bank sells securities to a dealer and agrees to buy them back the next day. They are used when the overnight rates falls below the target. The top of the operating band is referred to as the Bank Rate.
