BOE Keeps Asset Purchase Plan at 175 Billion Pounds

The Bank of England plans to keep buying as much as 175 billion pounds ($290 bn) of assets to cement the economy’s recovery from the worst recession in a generation. The central bank also kept the benchmark interest rate at 0.5%.

The bank has kept its rate at a record low since March to fight the economic and financial crisis unleashed by the collapse of Lehman Brothers Holdings Inc. a year ago. The European Central Bank kept its benchmark interest rate at 1 percent for a fourth month on Sept. 3. The U.S. Federal Reserve’s target range is zero to 0.25 percent.

Governor Mervyn King is concerned that banks aren’t lending enough and he said last month they have a very long way to go” before capital is rebuilt. Royal Bank of Scotland Group Plc and Barclays Plc, two of Britain’s biggest banks, have cut lending even after promising the government to make more credit available.

King sought 200 billion pounds in asset purchases last month in a minority vote backed by David Miles and Timothy Besley, who left the panel on Aug. 31. In June 2007, when King last dissented from the majority because he wanted an interest- rate increase, the panel supported it at the next month’s decision.

Deputy Governor Charles Bean said last month that the effects of the purchases so far have been moderately encouraging” and that gilt yields are as much as 75 basis points lower than they would otherwise be. He said that it is still very early to draw conclusions” on the plan’s efficacy. The bank has bought about 140 billion pounds in assets so far.

The yield on the 10-year gilt was at 3.75 percent today, up from 3.02 percent at the start of the year. The yield fell as low as 2.933 percent on March 13, two days after the central bank said it would start its asset purchase program.

BOE Keeps Asset Purchase Plan at 175 Billion Pounds, Bloomberg
9/10/2009 9:34:47 AM