LONDON, May 21 (Reuters) - Bank of England Governor Andrew Bailey set out on Tuesday an outline for how the central bank intends to ensure stable money markets as it sells more of the 875 billion pounds ($1.11 trillion) of government bonds it bought between 2009 and 2021.
Bailey said in a speech that as the BoE reduced its bond holdings - currently at a pace of 100 billion pounds a year - it would become clearer how much cash banks and other financial institutions wanted to hold with it.
The size of the BoE's balance sheet is inflated because of the cash created under its quantitative easing operations, but the central bank has long said it does not expect its balance sheet to return all the way down to its size before the 2008 financial crisis.
Instead, Bailey said he expected what the BoE calls the 'preferred minimum range of reserves' to be somewhere between 345 billion pounds and 490 billion pounds, which could be reached as soon as the second half of next year.
"We will have headroom should we need to use the balance sheet again, and we can maintain monetary control through the use of Bank Rate," Bailey said in the speech at the London School of Economics. ($1 = 0.7872 pounds) (Reporting by William Schomberg and David Milliken; editing by William James)
