Markets - Money markets
Theories
Interest rates are maintained by the Bank of England's daily operations in the money markets. These are based mainly around 'repos' - sale and repurchase agreements. This intervention is also known as 'open market operations'. The theories below give more detail about how this is done.
- Equilibrium interest rates - what determines the equilibrium rate of interest in the money markets?
- The 'shortage' - how does the Bank of England create a shortage of liquidity every day and why do they bother?
- Repo operations - the daily routine for repo operations, and how this helps maintain the level of interest rates.
- Interest rates and security prices - the price of gilts is inversely related to the rate of interest. This theory explains why.
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