OTTAWA (Reuters) - As a decision nears on naming the Bank of Canada’s new No. 2 policymaker, one of two vacancies on its key rate-setting committee, analysts say the bank should tap internal talent for at least one of the jobs instead of looking outside.
The appointments give Bank of Canada Governor Stephen Poloz, who is just 10 months into his job, a chance to put his stamp on the bank’s six-member governing council. Senior Deputy Governor Tiff Macklem will leave for a new job on May 1, and John Murray, one of four deputy governors, is retiring at the same time.
The bank’s board of directors is expected to emerge from a two-day meeting on Thursday with a name in mind to succeed Macklem. Finance Minister Joe Oliver must then endorse the candidate and obtain approval from the Conservative government’s cabinet before it is announced.
The bank is then expected to fill the newly created position of chief operating officer, who will not sit on the rate-setting council, and follow that with the name of Murray’s replacement. Those two appointments do not need political approval.
The current roster of deputy governors and advisers at the bank provides plenty of expertise from which Poloz can choose, and analysts who watch the central bank closely say there’s no real need to look elsewhere.
“If I were Steve (Poloz), unless you were really frustrated with what is around you, bringing two people from outside is a bit much,” said Chris Ragan, a McGill University professor and monetary policy expert.
Poloz should encourage the ambitions of long-serving central bank economists, he said.
Ragan himself is often seen as a potential candidate but ruled himself out, saying “my ship has sailed for that” and that he is committed to another project for the next five years.
Jean Boivin, a former deputy governor and the finance ministry’s G20 point man since October 2012, has been seen by many as the favorite to succeed Macklem. But he’s not in the race either, according to a source familiar with the process.
Most see Agathe Cote, a highly regarded economist who first joined the bank in 1982 and has served a deputy governor since July 2010, as the front-runner for the No. 2 job.
Timothy Lane, a former International Monetary Fund economist who became deputy governor in February 2009, is also seen as having a good shot at it.
The potential dark-horse external candidate is Andrew Spence, who recently left the Toronto-based OMERS pension fund, where he was a managing director. Spence began his career as an economist at the British Treasury. Bay Street economists, who spoke on condition of anonymity, say he is likely interested in serving at the central bank.
“I think Agathe Cote may have a slight edge,” said Charles St-Arnaud, a strategist at Nomura Securities International and a
former Bank of Canada economist.
Cote is the only woman and the only native speaker of French, Canada’s second official language, on the governing council. Her promotion would uphold the central bank’s stated commitment to diversity.
The big question is whether Poloz will favor internal or external candidates, or a mix of both. Macklem and his predecessor were both appointed after long careers mostly within the bank.
Whether internal or external, none of the candidates would represent a change of course on monetary policy. Unlike the system at the U.S. Federal Reserve, decisions at the Bank of Canada are the sole responsibility of the governor and the custom is to seek consensus on the governing council rather than a vote. Individual policymakers speak from the same script in public so there are no “doves” and “hawks” vying for influence.
For the same reason, the position of senior deputy governor is less likely to be politicized than that of governor.
The bank has held its key interest rate steady at 1.0 percent for more than three years and has flagged chronically below-target inflation as a big concern as the economy lumbers along at a lackluster pace.
Poloz describes his policy stance as “neutral,” meaning the next move could be either a rate hike or a cut.
Poloz, himself an outsider when the government appointed him as governor last June, may appreciate having guidance from long-serving central bank economists.
“My tendency tends to be that governors or deputy governors are people who have thought about monetary policy for 20 years, but that’s my bias,” Ragan said. “If you’ve got a group of four (deputy governors) there is probably room to have one that is from the financial markets.”
But Mark Chandler, head of fixed income and currency strategy at Royal Bank of Canada, said there is less need for a financial market background than there was five years ago at the height of the financial crisis.
“I don’t know that it is required at this point,” he said.
An external appointment could signal Poloz wants to bring a fresh, or even a dissident, perspective to the table when assessing the economy, or to add a new skill-set to the group. Spence, for example, would bring financial market expertise.
He could also lean toward someone with ties to industry, which would be in line with his interest in hearing more about the economy from businesses and relying less on the bank’s forecasting models.
Being second-in-command is not necessarily a stepping stone to the top job, however. The past four people in the role did not go on to become governor, a possible turnoff for those with aspirations.
But a second deterrent to taking the job has just been removed. Until now the senior deputy governor has had to juggle monetary policy with the responsibility of being the bank’s chief operating officer. The bank is now creating a separate COO position to allow the senior deputy to focus on policy.
To fill the gap left by Deputy Governor Murray’s departure, analysts mainly point to three current advisers at the bank: Sharon Kozicki, Carolyn Wilkins and Don Coletti.
Reporting by Louise Egan; Editing by Peter Galloway