BoE Has Scope to Do More Easing if Needed

The Bank of England has scope to pump more money into the economy if an asset-buying spree unveiled last week fails to kickstart growth, Deputy Governor Charles Bean said on Monday.

But he noted the central bank may also need to reverse its "quantitative easing" strategy should inflation start to pick up.

Britain's central bank said last week that it would buy assets -- mainly government bonds -- with 75 billion pounds of newly-created money to get the recession-hit economy growing again, writing a new chapter in the country's
monetary history.

"We have the scope to do more if that proves necessary," Bean wrote in an editorial in Monday's Daily Mail. "But equally, when the time comes, we will be able to change course to prevent inflation taking off."

The Bank of England cut interest rates to a historic low of 0.5 percent last week and admitted it had pushed conventional monetary policy to its limit.

Quantitative easing, effectively printing money, was tried in Japan in the early part of this decade with limited success. However, it has now become a watchword for cental banks everywhere as interest rates approach zero in the
most serious world downturn for decades.

Temporary Measure

Bank of England policymakers have been out in force in recent days to reassure the public that its unfunded asset purchases will not fuel hyper-inflation problems.

Bean noted the bigger concern in the current environment was inflation falling below target rather than rising above it. He also made clear that the measures would be temporary.

"As the economy recovers, so we will probably need to remove some of the extra money in order to ensure that inflation does not pick up too much," he said.

Sharon Lorimer

"But that is easily accomplished by pursuing the process in reverse, namely selling the assets that we have bought back into the private sector."

Bean said Britain's economy was in the early stages of "a particularly nasty recession" and the unprecedented monetary action was needed to shorten the downturn.

He said the central bank's bond purchases should make it cheaper for companies to borrow, encouraging them to maintain employment and investment levels.

Britain's economy shrank at its fastest pace in nearly three decades at the end of last year and is widely expected to suffer its worst performance this year since the Second World War.

Bean admitted that there was a good deal of uncertainty regarding the effectiveness of the scheme and policymakers needed to keep a close eye on the data to see how quickly the economy was responding.

"We will be monitoring the situation closely to see how the quantity of money and credit in the economy and, most importantly, the amount of spending is affected," he said.

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