The Bank of England will ultimately have to face up to monetary policy's limits as a tool to stimulate the economy, even if there are no technical limits for its purchases of government bonds, Bank governor Mervyn King said on Tuesday.
The central bank could not be "entirely sanguine" about its ability to bring forward future spending indefinitely through keeping monetary policy loose, King said at a question and answer session at the London School of Economics.
"The government is still issuing more debt than we are buying. So there is no technical limit on the asset purchases," he said. "I don't think it is an issue about the asset purchase policy. I think there is a deeper question about whether there are limits to what monetary policy as such can do."
King added that it was not clear whether this imposed any immediate practical limits on monetary policy, but warned that it would be hard for there to be global economic growth if most countries pursued strategies of export-driven growth.
Explaining the current policy of pumping cash into the economy through quantitative easing, King said there was too little money in the economy, a phenomenon not seen since the great depression.
(Reporting by Sven Egenter and David Milliken)