"Credit" easing a last resort - Bank's Posen

WASHINGTON (Reuters) - The Bank of England might aim to cut borrowing costs in specific areas of the economy should its program of buying government securities prove ineffective in stimulating economic growth, Bank Monetary Policy Committee member Adam Posen said on Thursday.

The Bank of England’s next step, if necessary, would be to shift into “heavy-duty credit easing,” Posen said, which he defined as targeting specific sectors such as the United States did with housing markets.

The Bank of England, like the U.S. Federal Reserve has embarked on substantial purchases of securities to boost growth after having lowered benchmark interest rates to very low levels.

However, after central bankers in the United States provided $1.7 billion (1.08 billion pounds) towards the effort and 200 billion pounds in Britain, further quantitative easing may see diminishing returns in stimulating growth.

Posen played down the usefulness of having the Fed target the yield on the ten-year Treasury note as a possible next page in its playbook.

U.S. officials are contemplating further quantitative easing if the economic outlook darkens, but policymakers may eventually need to find other tools.

Speaking about above-target inflation in Britain, Posen said that to the degree inflation can be explained as being due to a shock, policymakers have some latitude in their response.

If policymakers can credibly say inflation is not being passed through to general rises in inflation, the bank need not overreact, he said.

British inflation was 3.1 percent in July, well above the central bank’s 2 percent target, but the Bank said last month this was mostly due to temporary factors while future growth was likely to weaken, making rate rises inappropriate for now.

The Bank last week kept interest rates at 0.5 percent for the 18th month in a row and announced no new quantitative easing purchases.

Reporting by Mark Felsenthal; Editing by Chizu Nomiyama, Gary Crosse