Bank’s Tucker: show me the money numbers

Paul Tucker, the deputy governor for financial stability of the Bank of England, has added his voice to the growing chorus of central bankers calling for greater attention to be paid to money and credit developments.

The Monetary Policy Committee, of which Tucker is a member, at present focuses on a measure of broad money as a gauge of the effectiveness of quantitative easing. The deputy on Tuesday urged rate-setters to ensure that this interest in money and credit developments was sustained in the long run.

"In assessing the outlook for demand and inflation, monetary policymakers need routinely to take a greater interest in financial markets and their workings, over and above looking at asset prices as an input to wealth and the cost of capital. This means trying to make sense of risk premia and liquidity premia," he said. "The counterpart to placing greater weight on the level of and fluctuations in risk premia is being more attentive to money and credit quantities."

Tucker's comments follow similar statements by Jean-Claude Trichet, the president of the European Central Bank, and Christian Noyer, Duvurri Subbarao and Glenn Stevens, the governors of the Indian, French and Australian central banks.

Mervyn King, the governor of the Bank, acknowledged at the Bank's Inflation Report briefing earlier this month that money and credit measures may have been overlooked prior to the crisis.

Tucker indicated he backed Trichet's calls for "global concern" over monetary and credit aggregates, saying monitoring developments would require looking at wider measures than the Bank's own broad money numbers: "It is surely not at all uncommon these days for firms around the world to hold part of their currency liquidity with banks overseas."

Tucker noted that the Bank had had "another go" at creating a wider measure of British money growth which accounts for international deposit-taking activity and similar measures of world money growth. In both cases, the swings over the past decade were more pronounced on the wider measure, especially for Britain. "I am particularly struck that these aggregates start to pick up during late 2003, just about the time when the Bank's market intelligence began to report a revival in financial market animal spirits after the telco debt problems of 2002," he said.

"Broader measures can tell us about domestic as well as global conditions," he added, noting and this may be especially important for Britain given the prominence of non-UK banks in the financial sector.

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