Analysis: Next Bank of England chief Carney is more bark than bite

Thu Dec 20, 2012 12:21pm EST
 
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By Louise Egan

OTTAWA (Reuters) - Musings on unorthodox monetary policies are giving incoming Bank of England Governor Mark Carney a "radical" image before he even sets foot in his future home, but his record as head of Canada's central bank reveals him as a free-thinker on paper rather than in practice.

At three crucial crossroads during his mandate at the Bank of Canada, Carney talked about delving into bold, new frontiers of monetary policy. But when each decision time came, he opted for the more conservative path.

Carney, governor since 2008, oversaw an exhaustive research program at the Bank of Canada on possible alternatives to the bank's 21-year-old, inflation target, only to decide a year ago to stick to it for another five years.

With interest rates at rock bottom at the height of the global crisis, the bank published a plan for printing money, otherwise known as quantitative easing, but unlike his United States and UK peers Carney chose never to use that tool.

The decision surprised markets, even though Canada's economy was more robust than others and its banks never needed bailouts.

And for all his talk about using monetary policy to prevent asset price bubbles, it was the finance minister, not the central bank, who acted to cool an overheated housing market.

"His successes or imaginative approach was mostly in the financial sphere here, rather than a real clear break in monetary policy," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

"So I think he'll spend most of his time (in Britain) dealing with how to fix the banking system," he said.   Continued...

 
Bank of Canada Governor Mark Carney speaks to the business community during a luncheon in Toronto, December 11, 2012. REUTERS/Mark Blinch