LONDON (MNI) – The Bank of England could extend policy beyond
buying Gilts and find other ways of stimulating the economy, BOE
Monetary Policy Committee member Adam Posen says.
One idea is to extend quantitative easing to a variety of other
assets, but Posen said he was at odds with his colleagues on the MPC on
the issue. Speaking at a Trades Union Congress seminar on banking, Posen
argued the BOE could do more to ease the corporate credit shortage.
“This is where I differ in principle from some of my colleagues on
the Monetary Policy Committee. Just as the ECB has demonstrated, you
can do monetary policy on things other than sovereign debt,” he said.
“You just need to be very transparent about it … You need to take
a discount up front if it is more risky than sovereign debt and you need
to have a government that gives the central bank a guarantee,” Posen
said.
“The issue of the Bank of England’s capital being at threat does
not exist,” he added.
Posen said the cost of credit for small-to-medium sized enterprises
has risen and stayed high and UK companies are “truly credit
constrained.” He argued that one reason the US economy has recovered
more strongly than the UK is its financial sector provides more
diversfied funding for business.
Posen rejected the view that recent weak borrowing figures were
primarily due to a lack of corporate demand for credit. He said the
evidence suggested it was a problem of credit supply.
He called for greater diversity and competition in the UK financial
sector, where lending to SMEs is dominated by a handful of major banking
groups.
Posen said new entrants to the banking system would help the
situation. He said he applauded the fact retail giant Tesco, and
diversified company Virgin, had entered the banking system.
At present UK companies facing “ridiculously huge spreads” on
borrowings, Posen said.
–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]