Carney's deputy seen as favorite to take over at Bank of Canada

Mon Nov 26, 2012 5:05pm EST
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By Randall Palmer

OTTAWA (Reuters) - The Bank of Canada's senior deputy governor, Tiff Macklem, is the early favorite to replace Mark Carney as the head of the central bank, pointing to a steady-as-she-goes policy that points eventually to higher interest rates.

The policy picture would be less clear, however, if an outsider were brought in for the top Bank of Canada job, something that the bank has done on the last two occasions.

"He's been very involved with the governor since the credit crunch began, and we know that the two see eye-to-eye on many of the dynamics that are occurring in Canada right now," Ian Pollick, fixed income strategist at RBC Capital Markets, said of Macklem.

That said, the uncertainty introduced with the surprise appointment of Carney to the Bank of England weakened the Canadian dollar and boosted bond prices as markets bet on a chance, however slight, of a more dovish policy.

The Bank of Canada stands apart from other major central banks in that it avoided large bouts of quantitative easing and now insists the next move in interest rates is likely to be up.

It presided over a relatively quick recovery from the world economic crisis, with no Canadian bank having needed a government bailout. Canada's resource-rich economy has driven growth as other industrialized countries have struggled, and the country's property market avoided the excesses that plagued the United States, allowing Canada's banks to avoid losses.

Arguing in favor of choosing from within the bank for a new chief is the need to maintain morale, after the bank's senior deputy governor was passed over for outside candidates in the last two appointments -- David Dodge in 2001 and Mark Carney in 2008.

"Every so often at least you have to go internal just for long-run morale considerations," said Bill Scarth, economic policy expert at McMaster University in Hamilton, Ontario, and at the C.D. Howe Institute in Toronto. "Otherwise, when people get senior they start looking for another job."   Continued...

Bank of Canada Governor Mark Carney (L) waits to cross the street while walking with Senior Deputy Governor Tiff Macklem to a news conference upon the release of the Monetary Policy Report in Ottawa October 24, 2012. REUTERS/Chris Wattie