Bean says policymakers must counter cyclical excess

By Daren Butler

ISTANBUL (Reuters) - Policymakers should take asset prices into account when setting interest rates and "lean against the wind" to minimise the risk of boom and bust, Bank of England Deputy Governor Charles Bean said Saturday.

Speaking at a conference in Istanbul, Bean said policymakers should not go so far as to target asset prices but rather bear in mind the broader impact of credit and asset price growth.

Bean's speech was largely theoretical and did not touch on the immediate outlook for British monetary policy.

"Given the potential costs of a bust, it would therefore appear to be wise to use monetary policy to try to prevent the build-up of the imbalances in the first place," Bean said.

"Note that this is not going so far as to advocate targeting asset prices....But it does at least justify 'leaning against the wind' during the upswing phase of a credit/asset price boom in order to moderate the boom and thus also the prospective fallout from any subsequent bust."

Answering questions later, Bean said he believed the G20 is "the right body to build on (to tackle the crisis) and not the existing G7."

The Group of 20 (G20) leaders from major industrialised and developing countries met in Washington on November 15 when they pledged rapid action to rescue the weakening global economy from the worst financial crisis in more than 70 years and agreed to give emerging nations more say in running financial affairs.

The Group of Seven (G7) is made up of major industrialised nations.