Bank could shift to credit easing

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The Independent Online

The Bank of England might aim to cut borrowing costs in specific areas of the economy should its program of buying government securities prove ineffective in stimulating economic growth, according to Adam Posen, a member of the Bank's rate-setting Monetary Policy Committee.

The Bank's next step, if necessary, would be to shift into "heavy-duty credit easing", Mr Posen said, which he defined as targeting specific sectors, in the same way as the US did with housing markets.

The Bank has embarked on substantial purchases of securities to boost growth after lowering benchmark interest rates to very low levels. However, after central bankers in the US provided $1.7 trillion toward the effort and £200bn in Britain, further quantitative easing may see diminishing returns in stimulating growth.

Mr Posen played down the usefulness of having the US Federal Reserve target the yield on the 10-year Treasury note as a possible next page in its playbook.

Speaking in Washington about above-target inflation in Britain, Mr Posen said that to the degree inflation can be explained as being due to a shock, policymakers have some latitude in their response.