LONDON, July 22 Reuters The Bank of England said on Monday that banks should get ready to make greater usage of its repo facilities as it sells down its government bond holdings, and that it would also seek to make its sixmonth repo more attractive.

Repos, or repurchase agreements, allow banks to temporarily swap bonds they own for cash from the BoE, helping to keep market interest rates in line with the central bank39;s policy rate.

Both we, the Bank, and you, the market, need to prepare ourselves for increased usage of both our shortterm and longterm repo operations, the BoE39;s Executive Director for Markets, Victoria Saporta, said in a text published by the central bank.

The BoE is reducing at a pace of 100 billion pounds 129 billion a year its holdings of government bonds bought between 2009 and 2021 as part of its quantitative easing stimulus. This drains cash from the financial system, potentially putting upward pressure on overnight interest rates.

Adding further pressure is the end of a separate BoE scheme which offered banks cheap credit to lend to small businesses.

Cash reserves held by banks at the BoE currently total just over 765 billion pounds. In May, BoE Governor Andrew Bailey said they would need to fall to between 345 billion and 490 billion pounds to put regular upward pressure on interest rates, based on a financial market survey.

However, Saporta in a speech to be delivered to the Association for Financial Markets in Europe said there was…