The Bank of England will offer commercial banks emergency funds with longer repayment terms when it lends money next month, to ease potentially tight money markets at the end of the year, officials said Thursday.
The central bank said it will lend 10 billion pounds ($20.6 billion) at its benchmark interest rate of 5.75 percent for five weeks in an auction on Dec. 6. The funding is usually offered over a one-week period.
Bank of England Governor Mervyn King said the bank's decision to extend the December loan period was similar to measures recently announced by the U.S. Federal Reserve and the European Central Bank.
He added that it was "ready to take further measures in order to keep the overnight rate in line with bank rate."
"Given the continuing fragility in the banking system there is a risk that money markets will tighten over the end of the calendar year -- the end of the accounting year for many banks -- and this could cause overnight market rates to rise relative to bank rate," King said in testimony to a Parliamentary committee.
London interbank daily lending rates rose for the 14th successive day on Wednesday to 6.59 percent from 6.56 percent on Tuesday, according to the British Bankers' Association. The one-month rate also rose to 6.07 percent from 6.05 percent.