Please find another edition of Q&A with BCA – Huge thanks to BCA Chief Geopolitical Strategist, Marko Papic, for taking the time to answer this question while traveling and speaking at the 2013 SKAGEN Funds’ conference last week in Copenhagen, Denmark!
Q. The theme on which I would like to see your opinion is the appointment of Carney to the BoE – what are the implications for:
(i) UK policy,
(ii) Canada policy, and
(iii) UK fiscal austerity
i) The BoE has already been quite aggressive in terms of its monetary policy stance. In fact, its inclination to provide monetary support under the guidance of Sir King has enabled the government to undertake a fiscal consolidation program. As a result, British monetary policy should continue to stay easy under Carney. The Canadian could, however, play an important role in establishing new regulatory practices in the U.K. (his experience as the head of the Financial Stability Board gives him a special expertise). Steering the regulatory path for the U.K. will be particularly important on both the global stage (as regulators seek to bolster international banking rules) and the domestic stage (as parts of the Financial Services Authority are consumed by the BoE).
ii) Canadian monetary policy tends to closely track Fed policy. Further, since the BoC hasn’t been using quantitative easing to stimulate the economy, the next central bank governor will probably handle the BoC similar to the approach Carney would have employed.
iii) The British government has been unwavering in its pledge to follow through with its fiscal austerity program; this is unlikely to change because of Carney’s appointment. Moreover, since monetary policy is already quite easy in its policy stance, it is unlikely that additional stimulus launched by Carney would improve economic conditions enough so that the pace of fiscal austerity is advanced; it is also unlikely that additional QE from Carney would give the government enough space to adopt more austerity measures.
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