The cost of borrowing sterling against high quality collateral is sliding away from the Bank of England’s key rate, a distortion that risks impeding the central bank’s ability to tighten policy effectively. The price investors pay to borrow cash overnight by pledging gilts to counterparties, the so-called Repurchase Overnight Index Average or RONIA, is trading 43 basis points below the BOE’s rate. That’s a record discount after excluding quarter- and year-end aberrations, when regulatory requirements tend to distort funding markets. Normally, the two rates should move broadly in tandem as traders take their cues from ... (full story)