UPDATE 1-BoEs Posen: We will do some-more QE if we have to

Wed Feb 24, 2010 7:34am EST Related News BoE"s Posen: We will do more QE if we have toWed, Feb 24 2010HIGHLIGHTS-BoE"s Posen panel discussion in LondonWed, Feb 24 2010UK inflation jump will force explanation from BoEMon, Feb 15 2010HIGHLIGHTS-BoE Feb Inflation Report press conferenceWed, Feb 10 2010

* Posen echoes BoE governor"s remarks on QE

Currencies&&&&Bonds

* Don"t bet on high inflation, he tells investors

By Fiona Shaikh

LONDON, Feb 24 (Reuters) - The Bank of England will expandits quantitative easing programme again if necessary, centralbank policymaker Adam Posen said on Wednesday.

His comments are in line with those of BoE Governor MervynKing and other members of the Monetary Policy Committee who havemade it clear that, while their 200 billion pound asset purchasescheme has been put on hold, the door is open for more.

"If we have to, we will," Posen said in an interview withReuters Insider television.

King told lawmakers on Tuesday that more QE, where the BoEbuys mostly British government bonds with newly-created money toboost demand, may be needed if the economy remains weak.[ID:nLDE61M1SA]

Britain"s economy has just emerged from an 18-monthrecession, growing only 0.1 percent in the final three months oflast year and policymakers have said further quarters ofcontraction could be on the cards.

Earlier this month, the BoE forecast inflation well belowits two percent target on the central bank"s two-yearforecasting horizon based on market expectations of interestrates, and after an initial but temporary price spike this year.

That outlook implies rates may need to stay at the recordlow of 0.5 percent for longer than the market had been thinkingor that further QE may be needed to boost the economy and getinflation back on track.

"Any of you betting on high inflation in major economies,including the UK, will lose money," Posen said.

However, he warned policymakers to take heed of pastmistakes in estimating just how much support the economy mayneed so that they didn"t drive up inflation.

"The biggest mistake of the 1970s was that central bankersoverestimated the output gap repeatedly," he said.

Posen said one way to control inflation was to encourageinvestment in inflation-protected bonds.

"If you look at countries with linker bonds, they are theones with the best inflation records over the last 20 years," hesaid. "The BoE and most central banks are eager to have TIPS(Treasury inflation-protected securities) and otherinflation-linked bonds because it"s a disciplining device."

He later told reporters that the pound, which weakenedduring the financial crisis, had now stabilised.

"The pound has been stable since early 2009 ... and I thinkthere is no reason to think it will move beyond that," he said.

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