The global credit crunch has made it harder for banks to get hold of funding from money markets, with interbank lending rates climbing well above official borrowing costs.

By having a bigger cash cushion at the central bank, commercial banks will not have to rely so heavily on markets if they need to source cash quickly.

The BoE said it would raise its reserves target ceiling for banks to 2.5 billion pounds (US$4.96 billion) or five percent of sterling eligible liabilities, whichever is higher. The ceiling was previously 1 billion pounds or two percent.

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