Mark Carney looks poised to repeat a strategy that served him well during the global financial crisis.
As the Bank of England governor seeks to stave off any turmoil after Britain's decision to quit the European Union, he has cited his experience at Canada's central bank in 2008 as a guide. Acting early to prevent a deeper downturn became the hallmark of his approach in the prelude to the international slump, a perspective he can bring to the Monetary Policy Committee's debate this week on whether to cut interest rates.
"One thing Carney is very good at doing is jumping ahead of the curve," said James Rossiter, an economist at TD Securities in London and a former official at both the British and Canadian central banks. "As governor of the Bank of Canada, he was cutting rates dramatically before Lehman went bust. To have that sort of foresight, to know this was going to be a bigger issue than perhaps the markets were appreciating, and to go forth on a clear easing strategy, is something that we could see him repeating."
With Brexit roiling currency markets before a 2.6-per-cent rally in the pound this week, confidence gauges diving and Mr. Carney warning of a "material slowdown," economists and investors see more stimulus on the way. The governor is still at the vanguard of Britain's response as the government remains sidetracked by a change of leadership in the ruling Conservative Party.
On Wednesday, BoE policy makers will vote on whether to reduce the key rate for the first time since 2009. Mr. Carney also held a breakfast meeting with Scotland's First Minister Nicola Sturgeon, according to the BBC, and is also meeting U.S. Treasury Secretary Jacob Lew. The rate decision will be announced at noon London time on Thursday. Thirty of 54 economists surveyed by Bloomberg predict a cut, with the majority of those seeing a reduction to a record-low 0.25 per cent.
Ironically, Mr. Carney's old employer, the Bank of Canada, also holds a monetary policy meeting on Wednesday. Governor Stephen Poloz is likely to hold off from any rate cut in the face of a hot housing market and as the economy of the neighbouring U.S. provides support.
Carney said shortly after the referendum that easing will probably be needed this summer, meaning the focus now is on whether officials act this week or wait until their Aug. 4 meeting. The advantage of the later date is that the BoE will publish new forecasts in the quarterly Inflation Report and the governor is due to hold a press conference.
Still, as the only MPC member with direct experience of cutting rates in a crisis and the only one to have expressed a monetary-policy view since the Brexit vote, Mr. Carney seems clear that the best strategy is to be candid.
At his first meeting as Bank of Canada governor in March 2008, he oversaw a 50-basis-point rate cut to 3.5 per cent and went on to slash the key rate to 0.25 per cent by mid 2009. His willingness to seize the initiative was credited with helping his homeland survive the financial crisis in relatively good shape.
"I was a central-bank governor through the 2008 financial crisis; you have to come straight with people about where the risks are and then have a clear plan to address them," he told British lawmakers in London on Tuesday. "You can't govern by assertion, you can't wish things away. That way perpetuates a financial crisis. It reinforces it."
The views of his colleagues on the BoE's rate-setting panel are less clear. Chief economist Andy Haldane and policy maker Gertjan Vlieghe may be minded to vote for a cut, having indicated a willingness in the past.