–QE Still Works – In Some Respects Not Same ‘Bite’ As Formerly
–Says Reputation Of Banks Will Be Mended Only Slowly
–Comments In Interview With Euroweek

LONDON (MNI) – The Bank of England Monetary Policy Committee could
do more quantitative easing – “technically”, says Deputy Governor Paul
Tucker – but it will depend on how the MPC views the risks to inflation.

In an interview with ‘Euroweek’ published this week, Tucker said:

“Technically we could do more. It’s just a question of what we
think the risk to inflation would be”.

Tucker said that the MPC would need to take into account the impact
of the UK Treasury/BOE’s new Funding for Lending scheme.

“I don’t think we should just have one option in these
circumstances, which is why we are pleased to have launched the Funding
for Lending Scheme”.

“We still think QE works, even if in some respects it does not have
the same bite it used to have. We essentially buy Gilts from long term
institutions”.

Tucker said that QE increased demand for sterling corporate bonds
and many more firms had issued in this sector since the launch of QE.

“Some have used the proceeds to pay back bank loans, which delivers
benign deleveraging,” Tucker added.

Tucker said that the Funding for Lending plan can help the economy,
but cautioned that there are “no silver bullets”.

“People rightly point out that there may be weak demand for credit.
Of course that’s an element. But the Bank should do what we can to
alleviate problems in credit supply, consistent with staying within our
remit as a central bank”.

FLS would help contain the impact of the euro zone crisis on UK
banks’ funding costs:

“We’ve designed a system which incentivises the banks to lend more
and alleviates the pressures from the euro area crisis on their funding
costs”.

“It’s early days, but the level of interest from banks and building
societies has been high. So we think it will help gradually to repair
the economy”.

Tucker – who is perhaps the leading candidate to take over from
Mervyn King when he steps down from the helm of the BOE next year – was
scathing about the damage which had been done to the reputation of the
banks in recent times:

“The reputation and standing of banking will be repaired only
slowly, and as the reality improves”.

“There are roughly 15m people unemployed in the Western world
because of this financial crisis, which is dreadful. I think people will
remain focused on bank reform until economic recovery is secured”.

–London Newsroom: tel: +4420 7862 7492;
email:ukeditorial@marketnews.com

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