British finance minister Alistair Darling said on Sunday that more Bank of England rate cuts may have a minimal impact on the economy, and that he had discussed whether to start an alternative policy of 'quantitative easing'.
The BoE lowered interest rates by half a percentage point to a record low of 1 percent on Thursday, giving little further scope for rate cuts to ease credit conditions, especially as banks are now very reluctant to lend to firms and consumers. "Where we are just now is that the price of money ... is down to 1 percent. I don't think it can go much lower than that and still have a difference," Darling told a BBC chatshow.
Some economists are now questioning whether the Bank of England should still wait to lower rates to zero before starting on an alternative policy of quantitative easing, which aims to ease credit conditions by directly boosting the money supply, rather than by cutting banks' cost of borrowing from the BoE. The Bank of England gave details on Friday of how it would run a government-backed asset purchase scheme to effectively lend money direct to big companies - a scheme which with Darling's permission could easily enable quantitative easing.
"The question is, do you put more money in the system? I'm discussing that with the (BoE's) governor, whether we should give the Bank an extra lever to pull," Darling said.
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