MARK Carney finally enters his new office at the Bank of England next month, when he takes the reins from Sir Mervyn King after his decade at the helm. King’s last meeting a week ago was rather a non-event, as policy remained unchanged. But at least we didn’t see a repeat of events at the European Central Bank (ECB) a few years ago. The new ECB president Mario Draghi had to reverse rate hikes in quick succession, following what looks now to have been some brash policy decision-making.
Back in November last year, when the chancellor announced Carney would become the new governor in July, many were quietly thinking it was one of the worst jobs anyone could hope for. Becoming governor was rather like taking charge of a sinking ship with no lifeboats, while other vessels were heading towards the depths of the ocean. As things stand now, however, the green shoots look like they are well and truly emerging. Better-than-expected purchasing managers index surveys have even been followed by some improving news from the construction sector. But it’s the all-important services sector that has really surprised to the upside. Perhaps Carney’s job won’t be so tricky after all!
These are certainly not times to be complacent, however, so what can we expect from him? His CV tells us that he’s got a track record to be proud of. An ex-Goldman Sachs banker, he is attributed with seeing the Canadian economy successfully through the worst of the financial crisis back in 2008-9 during his early stages as governor of the Bank of Canada. He looks like he has a safe pair of hands.
But the main crux of the job for our Canadian friend will not just be to ensure that the green shoots turn into blossoming flowers, but to eventually wean us off the medicine of monetary stimulus. Stabilising the economy might be bread and butter work for Carney, but it’s the normalisation of interest rates that will likely provide the biggest challenge. We’ve seen in the past how central bankers have been reluctant to give up monetary easing. Our own King has continually voted for more asset purchases. Carney has been quite vocal in saying that more can be done in terms of central banking policy, and there’s a degree of market expectation that something new will be implemented (or the existing policy extended indefinitely).
One of the challenges he will face is chairing a Monetary Policy Committee that has grown accustomed to what many have described as a more autocratic approach under King. Having headed up the Bank of Canada’s Governing Council, there’s hope that Carney will be more open and consensual when it comes to his decision making. One thing is for sure, however: the chancellor (and all of us for that matter) will be praying that the success he achieved in Canada can be replicated on this side of the pond.
Angus Campbell is head of market analysis at Capital Spreads. You can follow him on Twitter @angusjmcampbell
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