Today we find out if Carney is innovative or timid
Eric Lonergan, macro investment fund manager at M&G Investments, comments ahead of today’s Bank of England monetary policy announcement.
Today’s Monetary Policy Committee meeting is extremely important and the range of potential outcomes is far wider than market commentators are suggesting. This will be the first serious decision Mark Carney has made since becoming Governor – and we will find out whether he is conventional and timid, or innovative and bold.
The markets are generally expecting a conventional and relatively dull decision: a cut in base rates of 25bps and additional QE. This may be the case but many other outcomes are possible; for example the cut in interest rates could be much more extreme at 75bps, along with the introduction of tiered reserves, as Japan has done. Alternatively, there could be no change in rates but the introduction of a ‘helicopter money’ programme in coordination with the Treasury.
The effects of the decision could be of global relevance – particularly if there is a major innovation in policy.
In the markets more broadly, we are approaching a pivotal juncture. There is a major shift in the policy-making mind-set globally in favour of fiscal stimulus and/or a new stage in monetary innovation. Markets are to some extent forcing this change. The critical question is whether policy-makers are on board.