Quick Thoughts on Carney's Move to the BOE

The UK surprised many by naming Bank of Canada Governor Mark Carney to replace Meryn King as the head of the Bank of England.   

Immediately pundits weighed in.  Some saying this was somewhat hawkish for the UK and sterling initially ticked up.  Others said this was a loss for Canada and the Canadian dollar initially ticked down.  

Yet both sides miss the point.  Carney was not chosen for his monetary policy biases.  On the contrary, what speaks the loudest is Carney's regulatory experience.  The Bank of England is in the process of securing the broadest and farthest reaching regulatory authority.  This is Carney's bailiwick.  He is, and will continue to be the head of the International Financial Stability Board.

In this context, it may make sense to pick some one with not beholden to domestic interests or influences. Surely, for nearly every other consideration, such as continuity, familiarity with BOE institutional framework, traditions, a cast of characters, there must be a legion of UK citizens that are up to the task.  

In terms of the implications for the near-term monetary policy trajectory, there ain't.  BOE Governor King's terms does not end until May.  During the next six months, it is possible that the BOE decides to embark on another gilt purchase program (QE).   After expanding by 1% in Q3 (GDP revision due tomorrow, no change is expected), the UK economy appears to have stalled, or nearly so, here in Q4. 

In terms of Canadian monetary policy, Carney has already soft pedaled the need for an imminent removal of accommodation (rate hike).  It is difficult to why this will change much in the coming months, with the US fiscal cliff and QE by the Federal Reserve, which may be extended next month to pick up some of the purchases now being conducted under Operation Twist.  Going over the fiscal cliff fully could push the US into a sharp recession in H1 2013. 

Bottom line:  Interesting development but not real policy implication or compelling case to buy or sell the Canadian dollar or sterling.  Therefore, more inclined to fade market move.