FRANKFURT, March 23 (Reuters) - The European Central Bank has raised a cap on how many bonds it can lend to investors against cash, it said on Friday, boosting a tool that has helped ease a drought in sought-after government paper.
The ECB is now prepared to lend out government bonds bought as part of its stimulus programme against collateral worth up to 75 billion euros ($92.59 billion), up from 50 billion euros previously.
“This 25 billion euro increase is proportional to the increase in... (ECB) holdings since the introduction of cash as collateral for securities lending in December 2016,” it said.
Demand to borrow bonds from the ECB against cash has grown since the launch of this facility but it has never come near the upper limit, peaking at 21.6 billion euros last December.
High-rated government bonds, used by investors to guarantee their trading positions, have become scarce since the ECB started its massive buying programme, aimed at boosting inflation and on course to be worth 2.55 trillion euros.
As this drought was threatening the good functioning of financial markets, the ECB started lending out its bonds against cash in December 2016, helping to gradually ease the squeeze. ($1 = 0.8100 euros)
Reporting By Francesco Canepa Editing by Gareth Jones