MPC backs MBS guarantees

The Monetary Policy Committee has advocated the Treasury\'s move to guarantee loans saying that base rate is not the way to bolster the credit markets.

The minutes of the December MPC meeting reveal the committee voted unanimously to cut the base rate by 1% and also that the members considered trimming it by more.

The committee acknowledged the supply side problem with funding in the credit markets but said that other tools are needed to underpin the lending markets.

The minutes say: “The committee noted the importance to the economic outlook of bank lending, to both households and businesses. In that context, the underlying weakness in credit and broad money growth was a concern.

“But the committee agreed that Bank rate was not the right policy instrument to tackle supply constraints in the credit
market. Further measures to underpin lending growth would be needed, building on the government’s package announced in October to recapitalise and guarantee funding to the banks.”