Philip Hammond has authorised the Bank of England to extend the size of its cheap credit scheme for banks.
In letters released by the Bank today, Hammond authorised a request from the bank's governor Mark Carney for the maximum size of the scheme to be increased by £25bn, to a total £140bn.
The Term Funding Scheme (TFS) is due to close at the end of February next year. It allows banks and building societies to borrow from the Bank of England at a rate close to its benchmark rate, as long as they boost lending to individuals and businesses.
The Bank of England and the Treasury agreed in August last year that total drawings from the TFS would be determined by the usage of the scheme.
The Bank has said it will not increase the fund's rate in the wake of its increase of the base rate from 0.25 per cent to 0.5 per cent at the beginning of November.
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In a letter to Hammond, Carney wrote: "The TFS has been effective at ensuring that the low level Bank rate has been passed through to real economy lending rates.
"Rates on new and existing loans fell after the TFS was launched and have remained low by historical standards."
The decision follows on from a similar increase authorised this summer, when the maximum size of the programme was increased from £100bn to £115bn.