–Reiterates QE Reviewed Every Month; Any More QE Will Be Via Gilts
–Reiterates 1st Unwinding Move Will Be Rate Hike Then Asset Sales

LONDON (MNI) – Bank of England Governor Mervyn King said today he
doesn’t know if the Monetary Policy Committee would agree to expand its
programme of asset purchases but said that it would continue to review
QE every month.

Speaking to the House of Lords Economic Affairs Committee today,
King said:

“I don’t know if it’s going to be required or not. We do make a
fresh judgement each month as to what we think is necessary. We don’t
just say, let’s forget it for 3 or 4 months. We do examine it every
month.

“We’re prepared to change our minds each and every month so I’m not
going to anticipate what we decide”.

Pressed on how the BOE would unwind its policy easing when the time
came, King said that it was most likely that this would come first via a
rise in Bank Rate – then by a programme of asset sales.

If more QE was done then it was likely that it would take the form
of more conventional gilt purchases rather than of private sector or
more exotic purchases, King said:

“If we were to do more, then it would be in formal gilt purchases.
That’s the way we increase the amount of money in the economy,” King
said.

King noted that the BOE’s balance sheet had expanded at the same
pace and magnitude as other central banks:

“The committee in thinking about how it would unwind the effect of
asset purchases has concluded in a preliminary way that the first move
will in all probability be an increase in Bank Rate”.

Asset sales would follow when the MPC was sure it was in a
period where policy would need to be tightened over a sustained period:

“That’d mean we’d coordinate with the DMO, and that would assure an
orderly method by which these assets would be sold. So that would be
pre-announced and carried out,” King said.

This would push up long-term rates – but that would be a good
thing, King said:

“One would expect that would then gradually push up longer term
interest rates, which would be the desired outcome, given that we would
only want to do this at a point when we’re trying to tighten policy”.

King rejected arguments that the BOE would lose money selling its
gilts at such a time, saying that the point of QE had not been to make
money but to boost growth.

“I don’t see that this is an interesting calculation. For two
reasons. One is these are assets that are effectively issued by one
party – the public sector – and bought by another. And secondly because
the real purpose of doing this is to ensure that the economy grows at a
faster rate than would have otherwise been the case”.

–London newsroom: 4420 7862 7492; email: dthomas@marketnews.com

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