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Asset-buying scheme targets quality private sector; ECONOMY.

The Chancellor and Governor of the Bank of England last night gave details of the pounds 50 billion asset-buying scheme to free up credit and lift the economy.

In an exchange of letters, Mervyn King and Alistair Darling confirmed the fund will purchase only high-quality private sector assets, with the aim of improving liquidity for credit-starved companies.

Mr King said the purchases will focus initially on corporate bonds, commercial paper and paper issued under the multibillion pound credit guarantee scheme unveiled by the Government last Monday.

He will provide more information on the purchases next week while also consulting over buying up syndicated loans and asset-backed securities, both of which are more risky and hard to trade in the market. The Government announced the launch of the fund last week as part of measures toun block the lending log jam. The pounds 50billion asset buying scheme also helps policymakers at the Bank to fight deflation as interest rates come close to zero.

The Monetary Policy Committee has yet to be given access to the scheme but it was confirmed that, if it needs to use it as an additional tool, the Chancellor would consider expanding the fund.

Any details would then be outlined in a further exchange of letters between the central bank boss and Mr Darling.

The fund lays the groundwork for socalled quantitative easing-style tactics, where money supply is increased.

But the plan stops short of pure quantitative easing and is seen as a potentially crucial new monetary policy tool to help bring inflation back in line when interest rates cannot be cut further.

Whereas quantitative easing methods involve directly boosting the money supply by buying government bonds, the fund involves only the purchase of private sector assets. Its aim is to give companies greater ability to borrow and therefore spend, boosting the economy.

However, MrKing said the Bank would keep under review the need to extend the eligible assets.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jan 30, 2009
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