April 20, 2009 / 5:29 PM / in 9 years

Market knowhow could help Bank of Canada's Carney

OTTAWA (Reuters) - Mark Carney will need all his market smarts to lead Canada’s central bank as it considers unprecedented action to breathe life into an anemic economy, after already slashing interest rates to almost zero.

<p>Bank of Canada Governor Mark Carney waits to testify before the Commons finance committee on Parliament Hill in Ottawa in this February 10, 2009 file photo. REUTERS/Chris Wattie</p>

Carney, just a year into his seven-year term, was a controversial appointment as Bank of Canada governor, in part because of an career path that included a 13-year stint at Goldman Sachs, rather than the decades-long public service career that most of his predecessors followed.

But that expertise in financial markets will pay off for Carney and his team as the central bank lays out a framework for measures that could include expanding the money supply to buy securities in the market.

“You could certainly say he’s had a baptism by fire in terms of coming on as governor just at the moment when the crisis broke,” said John McCallum, a Liberal legislator and former chief economist at Royal Bank of Canada.

The bank sets interest rates on Tuesday, and on Thursday it will update its economic outlook in a report that will also detail possible nonconventional measures -- known as quantitative easing -- to prime the monetary pump.

McCallum, who worked with Carney at Finance Canada when the Liberals were in power, said he never doubted the ambitious young economist’s abilities as the country’s top banker.

But others did have doubts, either because his young age suggested inexperience -- he turned 44 in March -- or because they thought his Goldman Sachs background would make him too sympathetic to bankers’ needs.

Carney, a father of four young daughters whose earliest ambition was to play professional ice hockey, worked for Goldman in London, Tokyo, New York and Toronto after graduating from Harvard. He has a doctorate from Oxford University.


Bill Robson, president of the C.D. Howe Institute think tank, said Carney has balanced his street savvy with a strong public policy sense and a healthy dose of skepticism.

“He knows the financial business from the other side of the wicket and that’s proving to be unexpectedly helpful under the current circumstances,” said Robson.

In early 2008, Carney was more pessimistic than most other bankers about the economic impact of the credit crisis and at the first opportunity in March, he slashed the bank’s overnight rate by a half-percentage point for the first time since 2001.

All told, the bank has cut its benchmark lending rate by 4 percentage points to an all-time low of 0.5 percent under his leadership. It has also pumped over C$40 billion into money markets through extraordinary short-term lending facilities.

Carney suffered a bruising blow to his credibility from analysts after the bank in January forecast a sharp economic recovery starting later this year and leading to 3.8 percent growth in 2010.

He has since backed away from that view and the bank is expected to downgrade its growth forecasts on Thursday.

But with markets eagerly watching his next move, Carney has also been cautious to signal there is no guarantee he will go ahead and print money to buy government or corporate bonds.

In a recent visit to his birthplace, Fort Smith, Northwest Territories, he gave a lengthy interview to the local newspaper that suggesting he was wary of overshooting and providing too much stimulus to the Canadian economy.

“We need to continue at all levels of government to manage the policy, whether it’s government borrowing, government budgets or monetary policy which is the bank’s responsibility, in a way that’s sustainable over the long-term. So not try to do too much at the core,” he told The Slave River Journal.

Reporting by Louise Egan; editing by Janet Guttsman

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