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Bank of England mulls "nuclear option" of cash injection
Edmund Conway
London
Telegraph
Friday, Dec 05, 2008
The Bank of England is working on radical plans
to inject cash directly into the economy - the nuclear option
to be used only when interest rates approach zero.
In what would be a major departure for British monetary
policy, the Bank is considering pressing the button on printing
presses by engaging in a so-called policy of quantitative easing.
It emerged after the Monetary Policy Committee cut borrowing costs
by 1pc to just 2pc - the lowest level since 1951.
In the statement published alongside its decision, the Bank warned
that "it was unlikely that a normal volume of [bank] lending
would be restored without further measures."
The measures under consideration include direct purchases of
assets, such as government debt or commercial investments, by
the Bank or the Treasury, as well as expanding the Bank's balance
sheet, a means of pumping extra cash into the banking sector.
(ARTICLE CONTINUES BELOW)
The radical proposals, which are currently being explored by
Bank experts, could be put into action within weeks, although
they would have to be vetted by the Treasury, which is thought
to remain sceptical. The main obstacle is that the policy could
be found to conflict with European Union laws on how governments
manage their budgets.
However, added weight was given to the proposals by European
Central Bank President Jean-Claude Trichet, who seemed to hint
in the press conference to announce the ECB's 75 basis point rate
cut yesterday that it may also consider "nuclear options".
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