Bank of England may shift to 'heavy-duty credit easing'

HAMISH_MCTAVISH

Bank of England may shift to 'heavy-duty credit easing', says rate setter Adam Posen



The Bank of England might aim to cut borrowing costs in specific areas of the economy should its buying of government bonds prove ineffective in stimulating economic growth, Monetary Policy Committee member Adam Posen said.

He told a confence in Washingon the Bank of England's next step, if necessary, would be to shift into "heavy-duty credit easing".

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with housing markets.

http://uk.finance.yahoo.com/news/bank-of-england-may-shift-to-heavy-duty-credit-easing-says-rate-setter-adam-posen-tele-cd2e508d8174.html?x=0

Blacklight

Could we see 0.25% BOE rate?

Generali

There is no reason for the Bank of England to prop up the housing market as was done in the US as the UK's housing market isn't causing problems. If anything is going to be targeted I would imagine consumer or business credit would be the thing. Even then, the problem I reckon is on the demand side not the supply side.

System

What does "heavy-duty credit easing" mean?

Generali

Blacklight wrote: »

Could we see 0.25% BOE rate?

We could but like the intervention in the housing market I don't really see what point it would serve. It would be unlikely to reduce market interest rates by much and it might smack of panic.

chewmylegoff

what would intervention in the housing market look like? a government backed lender offering cheap mortgages to uncreditworthy people. that worked pretty well in the US, so should be a goer here.

michaels

They just need to read my posts - negative interest rates are the way to go (it was tried in Japan so has a track record). Making it too expensive for banks to hold on to funds and they may then be forced to try and shovel money down the throats of reluctant borrowers. Not surprisingly small businesses don't want to borrow as the rates they currently face for doing so and collateral requirements are higher in most cases than they were 3 years ago when the base rate was 5% higher.

The other option might be to offer the banks some sort of insurance against default by small business borrowers but difficult due to EU rules and moral hazard risk.

Of course all this pre-supposes that there is a real risk of deflation that needs combating - may be this is just a 'nudge' to convince the markets that there will not be a double dip because the financial authorities have not only the desire but also the means to prevent it. A bit like the Bernake put, banks should be able to be more confident in their lending and borrowers less cautious if there is some sort of 'guarantee' that there will not be a second recession.

Chris2685

Wasn't 'eased credit' what got us into this mess in the first place?!

michaels

Only thing is if house prices started to fall sharply bank solvency would be in the frame again which would impose further costs on the economy as banks once again hoarded capital - if there is a (credible) policy announcement that basically such a decline will not be 'allowed' then it should allow the banks to operate without having to manage that particualr risk.

Generali wrote: »

We could but like the intervention in the housing market I don't really see what point it would serve. It would be unlikely to reduce market interest rates by much and it might smack of panic.

ILW

I thought that new capital requitements were being bought in to restrict banks exposure. this does seem rather contradictory and sounds like the powers that be do not have a clue what to do.

chucky

ILW wrote: »

I thought that new capital requitements were being bought in to restrict banks exposure. this does seem rather contradictory and sounds like the powers that be do not have a clue what to do.

it's not something that will or can be corrected over night.......