§ As I said at the outset, monetary policy plays, and must always play, the central role in the battle against inflation. It is at the very heart of the medium-term financial strategy, the 10th edition of which I am publishing today.
296§ I have described the monetary tightening that has taken place over the past nine months. This has already led to a sharp fall in the rate of growth of the target aggregate, narrow money, or M0.
§ For 1989–90, the target range for M0 will be 1 to 5 per cent., as envisaged in last year's MTFS. Although it will start the year above the top of that range, its very low growth over the past six months—below 3 per cent. at an annualised rate—suggests that it will fairly soon come back within the range. As in the past two years, there is no target for the growth of broad money, or liquidity, but I will continue to take it into account in assessing monetary conditions.
§ The exchange rate is of particular importance in the conduct of monetary policy. The Government's clear commitment not to accommodate increases in domestic costs by exchange rate depreciation remains a key safeguard against inflation. In this context, we will continue to work with our G7 partners to maintain the greater exchange rate stability that has been a feature of the past two years.
§ Short-term interest rates remain the essential instrument of monetary policy. I repeat now what I have stated clearly on a number of previous occasions: interest rates will stay as high as is needed for as long as is needed, for there will be no letting up in our determination to get on top of inflation.