Mark Carney leaves behind a stellar legacy as the former governor of the Bank of Canada and economists predict he will begin his new position carrying the weight of high expectations.
Great expectations await Mark Carney – 'absolutely the right person for Bank of England job'
Tomorrow, Mark Carney will assume the role of the 120th governor of the Bank of England.
He leaves behind a stellar legacy as the former governor of the Bank of Canada (BoC), and economists predict he will begin his new position carrying the weight of high expectations.
"Mark Carney is heading off to London with this unbelievable glow about him," says Craig Alexander, the chief economist at TD Bank Group.
"I think he is absolutely the right person for the job, but I also think there are inherent limitations of what central banks can achieve."
There's no denying Mr Carney's success with the BoC has garnered praise and attention.
For starters, he took up the mantle of governor just before the global financial crisis kicked in 2008 and conducted monetary policy through the most difficult economic time since the Great Depression.
Mr Carney reacted quickly by providing additional liquidity to the Canadian banking system when the financial system needed it most.
"When, globally, banks stopped lending and the cost of borrowing shot up dramatically, Mr Carney quickly realised how bad things could become and was willing to step outside of monetary policy thinking and acted very aggressively," Mr Alexander says.
As a result, the BoC ensured access to funds at a time when the rest of the global financial system was barely functioning. It took interest rates down to unheard of levels, almost zero, and then took the opportunity to raise rates because the economy was performing better than other countries.
"Mark Carney was one of the more aggressive central bankers to deal with the shock to the economy," says Benjamin Reitzes, a senior economist at BMO Capital Markets.
"He enhanced the Bank of Canada's reputation as one of the best central banks in the world."
Mr Carney also implemented unique policies. For the first time, the BoC provided forward-looking guidance on interest rates, announcing rates would remain at the same level until a specified date. Later, the US Federal Reserve and the Bank of Japan adopted this policy.
"When Mr Carney was appointed chairman of the [Group of 20 leading and emerging economies']. The Financial Stability Board [FSB], it was further testimony to his power," Mr Alexander says. Canada, making up only 3 per cent of the world economy and global capital markets, was suddenly in the spotlight as Mr Carney, a key financial leader, took the helm at the FSB.
This influence will certainly play a part in his new role as BoE governor, since London, a preeminent financial centre, will ultimately be affected by what the FSB sets in place for global financial regulations.
However, despite Mr Carney's major milestones of the past, he has not completely paved the way smoothly for his successor.
Economists expect Stephen Poloz, in his new role as governor of the BoC, will face the challenges of gradually weaning Canada off low long-term interest rates and working to rebalance monetary policy.
This will be particularly trying given the enormous monetary stimulus that was provided to the economy when Mr Carney took the reins.
Mr Poloz must find a way to raise interest rates and maintain economic growth but must do so in a gradual and drawn-out fashion, according to economists.
Mr Alexander is confident that Mr Poloz "is up for the challenge." Mr Poloz will also be tasked with addressing Canada's record household debt. "Domestically, it's going to be difficult," Mr Reitzes says.
It will not be a walk in the park for Mr Carney in the UK either. Despite his track record and ability to think on his feet to address the situation at hand, economists stress the British public must keep realistic expectations.
Mr Carney's main tasks as governor of BoE, economists say, include setting monetary policy for the UK, improving economic growth, ensuring inflation remains in check and overseeing the implantation of new financial regulations. On the flip side, while some may assume a Canadian taking over as governor of the BoE, the first foreigner ever to do so, has the power to influence bilateral trade between the two countries, economists agree such cause-and-effect is unlikely. The main reason is that trade policy does not fall in line with the job expectations of the governor of the BoE.
In a best-case scenario, economists say if Mr Carney is successful, it will raise awareness and favourable public opinion of Canada and in turn, can indirectly impact trade.
"Mr Carney has an awful lot on his plate," Mr Alexander says. "He can do the best he can in terms of setting monetary policy and setting financial regulations but there are limits to his power.
"He doesn't have a magic wand that will make all the problems of the UK economy and the euro-zone economy go away. I'm concerned that given the enormously powerful feeling that surrounds him today, there could be difficulty living up to expectations."