–Adds Detail To Version Transmitted At 1056 GMT

LONDON (MNI) – The Bank of England’s Monetary Policy Committee has
not lost faith in asset purchases and the MPC voted not to increase QE
at its November meeting because of the inflation outlook and the
monetary easing coming from the decision to transfer excess cash from
the BOE’s gilt holdings to the Treasury.

At the press conference following the November Inflation Report
King stressed that the MPC did not believe QE is ineffective,
highlighting other reasons why the committee had not extended it.

The Inflation Report projections “explain exactly why we did
pause,” King said.

He said that in the current environment “there are limits to the
ability of domestic policy to stimulate private sector demand … But
the Committee has not lost faith in asset purchases as a policy
instrument, nor has it concluded there will be no more purchases.”

Some members of the MPC, however, have expressed doubts about the
effectiveness of QE at present. King denied that this amounted to a
belief it was intrinsically less effective.

“I don’t think anyone on the MPC is saying QE in, and of itself
less effective in the sense that the more you do the less effective it
becomes,” he said.

He acknowledged, however, that the effectiveness of QE is not
constant through time.

Everyone on the MPC does believe “that the circumstances in which
you carry out the asset purchases do make a difference to its
effectiveness,” King said.

The BOE Governor restated his views on the limits of monetary
policy: that policy cannot continue indefinitely to postpone the
rebalancing of the UK economy towards a more export oriented, lower
debt, higher saving economy.

“As you go through the process of adjustment to a new, real
equilibrium there will be difficulties in trying to persuade people to
hold off getting there. You can’t postpone for ever the adjustment to
the new real equilibrium,” he said.

King also said that both the outlook for inflation and the fact
that the transfer of coupons from the Asset Purchase Facility to the
Treasury would also provide monetary stimulus were key reasons why the
MPC held back from sanctioning more asset purchases at its November
meeting.

“I think the outlook for inflation in the inflation report we
published this morning explains exactly why we paused. We know that
there is going to be approximately stg37 billion of equivalent asset
purchases implied by the transfer of coupons in the APF fund to the
Treasury. That will take place over the next ten months, given that that
is going to happen, given the outlook for inflation I think that the
committee felt that no change was the right decision last week,” King
said.

–London newsroom: tel+44 207 862 7491; e-mail:
drobinson@marketnews.com

[TOPICS: M$$BE$]