In an open lecture delivered at the University of Kent at Canterbury the Governor discusses the objectives and practical operation of monetary policy.
The ultimate objectives are stability of the currency and, more fundamentally, the creation of a strong and growing economy. Intermediate objectives are couched in the form of targets for the monetary aggregates and set out in the Government's medium-term financial strategy. The relationship between these aggregates and nominal income is subject to considerable variation and uncertainty so targets need to be pursued pragmatically, with discretion, rather than through the adoption of automatic rules. Possible alternative targets are discussed and the practical difficulties that they would raise are described.
In considering the implementation of policy, the Governor notes that the authorities' influence on interest rates through official operations in the money market has limits and that in the short term the demand for credit tends to be rather insensitive to changes in interest rates. He goes on to expLain why overfunding of the public sector's borrowing requirement is a rationaL approach to offsetting the monetary effects of excess demand for credit and that it has occurred, on and off, throughout the post-war period.