§ It is important to express the medium-term strategy in terms of a wide measure of money, because it has close links with public spending and borrowing. So I am maintaining continuity by keeping sterling M3 as the yardstick for medium-term policy. The aim remains to reduce monetary growth to 4–8 per cent. by 1983–84. The new target range for next year, based on the actual figure for sterling M3 in banking February, will be an annual rate of 6–10 per cent. over the 14 months to April 1982.
§ The special factors at work last year are unlikely to be repeated. In any event, they should have no adverse implications for future inflation. But we cannot be certain that they were the only causes of the rapid growth in the money supply. So it may be desirable to recover some of the past year's high monetary growth in the form of lower growth over the medium term. But the most important requirement is a lower growth of the broad measures of money in the years ahead.
§ However, the short-term response of sterling M3 to interest rate changes is particularly uncertain and the full effect can be spread over many months. The narrower measures, which we also monitor, include fewer interest-bearing types of money and are more sensitive to changes in interest rates. But because they are so sensitive they can overstate the effect of interest rate changes on underlying monetary conditions. Moreover, their relationship to other aspects of policy is less clear.
§ I am taking steps, therefore, to improve the information available about the narrower measures. Publication of figures for monetary base will begin later this month. 763 Arrangements for a new statistical series for the retail deposits of the banking system, M2, are also well advanced. That will be publishted later this year.
§ We shall continue to monitor Ml. In doing so, we shall take account of its normal tendency to grow quickly as nominal interest rates come down with inflation. For this reason we may now find Ml growing rather faster, for a time, than it did last year.