Thursday 2 February 2012 9:04 pm

Posen: Extend QE beyond gilts

MONETARY Policy Committee (MPC) member Adam Posen yesterday revealed he had pushed colleagues to extend quantitative easing beyond government bonds. The arch-dove wants the Bank to buy corporate debt as part of a wider series of reforms to boost lending, particularly to small businesses. Posen has long argued in favour of quantitative easing, and believes it has successfully boosted economic growth. The MPC is widely expected to announce another £50bn of asset purchases at next week’s meeting, though currently only UK government bonds are purchased. The aim is to take the assets from financial services firms, which will then invest in other assets like corporate debt, lowering interest rates and boosting borrowing. If the Bank of England bought corporate bonds itself, if could directly lower those borrowing costs – though difficulties may come in deciding which firms’ debt to buy. “There is too much of a fear of a public role in creating financial infrastructure,” he said. “It would not be the end of the world if the MPC were, as part of the asset purchases, to buy things other than gilts.” Speaking to a Trades Union Congress (TUC) audience, he also argued that greater competition in the banking sector – in part though the establishment of a state investment bank – standardised loan application forms and the development of a junk bond market would all help SMEs. “We need more diversity and competition to get credit flowing,” he said, saying UK firms rely too much on bank lending and not enough on bond markets. to this end.”