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@ halalmoney
2025-06-05 09:01:18
The “Kink Point” and Uncertainty in Reserve Demand
What’s the Issue: There is significant uncertainty about the minimum level of reserves the financial system needs. Estimates for the UK range widely (£385bn–£530bn), and the exact “kink point” where reserves shift from abundant to scarce isn’t known in real time.
Why It Matters for Policy: Hitting this kink could cause unexpected volatility in short-term rates and complicate the Bank’s ability to control monetary conditions. The difference between SONIA (the overnight rate) and Bank Rate will become a key indicator to watch, as it may signal when the system is nearing reserve scarcity.
Key Insight: “In practice, it will be hard for us to know in real-time on what part of the demand curve for reserves we are... The uncertainty around the demand for reserves might be challenging as we move away from an abundant supply of reserves system.”
Sources:
Perplexity
https://www.bankofengland.co.uk/speech/2025/june/catherine-l-mann-fireside-chat-at-the-federal-reserve-board-of-governors