–Makes No Comments of Current, Future BOE Monetary Policy

By Heather Scott

WASHINGTON (MNI) – With quantitative easing on hold for now, the
Bank of England’s next policy move, should it become necessary, could be
“heavy credit easing,” purchasing private rather than just government
debt, BOE External Member Adam Posen said Thursday.

Speaking in a wide-ranging discussion of his year at the BOE, with
former Federal Reserve governor Laurence H. Meyer, the U.S. economist
told a conference that credit easing is likely to prove to be more
effective on the overall economy than just quantitative easing.

“My feeling was credit easing would be more effective than
quantitative easing, because it would give you two or three bites at the
apple,” by allowing policymakers to affect risk in a particular market
in addition to adding liquidity, Posen said.

The downside is that when the time comes to discuss exit
strategies, the Fed will have more concerns about offloading
mortgage-backed securities than the BOE will selling off GILTs, he said.

Even so, Posen said, the right kind of research is likely to show
that “what the Fed did was more bang for given buck.”

“In the U.S. with more channels of finanacing there are more ways
in which quantitative and credit easing could work than in the UK,” he
said.

Because the BOE has only done quantitative easing up until now the
next page of the policy playbook “would be to shift into heavy duty
credit easing,” Posen said.

However, he cautioned that the would only become necessary if
things take a dramatic turn for the worse.

And despite the more difficult exit costs for the Fed, if things
were so bad that monetary policymakers were considering further steps,
Posen said, “It is difficult to think of what would be a large enough
cost to weigh against genuine macro factors. There is an order of
magnitude issue here.”

Posen declined to comment specifically on any current or future BOE
policy moves.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MGU$$$,M$$CR$,MI$$$$,M$$BE$]