BoE splits over bond program

LONDON: Bank of England policy makers recently split three ways in a vote to extend the bond-purchase program to 200 billion pounds ($336 billion), and discussed lowering the deposit rate on bank reserves to encourage lending.

While the majority of the nine-member Monetary Policy Committee wanted a 25 billion-pound increase, Chief Economist Spencer Dale favored no change and David Miles sought a 40 billion-pound expansion, a report of the Nov 5 meeting published in London showed. They unanimously kept the benchmark interest rate at 0.5 percent.

"A reduction in the rate of remuneration relative to bank rates on a proportion of commercial bank reserves would bear down on short-term market rates and could ease monetary conditions further," the report said. The committee "agreed that it might be a useful policy tool in some circumstances, and therefore should be available in the future".

The decision is the first three-way split since August 2008, before the collapse of Lehman Brothers Holdings Inc exacerbated the financial crisis. A change in the deposit rate would expand the toolkit available to policy makers as they try to pull the UK out of its longest recession on record.

"It's very much a case of keeping their options open," said Alan Clarke, an economist at BNP Paribas SA in London. "These minutes are saying there's arguments in both directions, and it's going to be very data-dependent in the next three months."

Bloomberg News

(China Daily 11/23/2009 page11)