LONDON (Reuters) -The Bank of England said on Friday that it intended to buy new green gilts which will be issued by Britain's government later this year as part of its asset purchase programme, treating them similarly to other government debt.
Britain's government plans to issue at least 15 billion pounds ($20.6 billion) of new debt this financial year which is specifically designed to capitalise on investor demand for bonds whose proceeds are ring-fenced for environmental investments.
"In response to questions from market participants, the Bank of England confirms that green gilts will have equivalent eligibility to existing gilts in its market operations," it said in a statement.
Green bonds will also be able to be used by banks as collateral in other BoE operations.
The BoE aims to raise its main holding of British government bonds to 875 billion pounds by the end of this year, and is currently buying debt at a rate of 3.4 billion pounds a week.
The BoE buys conventional gilts with a remaining maturity of at least three years, but does not buy inflation-linked gilts which make up almost a quarter of total issuance.
Britain has lagged behind some other major issuers in launching green government bonds, in part because of doubts about whether they were a cost-effective way to raise money.
However, last year Germany launched green bonds which offered a lower interest rate than standard debt, reflecting a jump in investor demand for these assets to hold as part of portfolios that can be marketed as environmentally friendly.
($1 = 0.7283 pounds)