What will Canada do without Mark Carney: Mr. Time magazine young, good-looking and charming? That's the question occupying the minds of some Canadians, especially economists and other market watchers, after the surprise announcement on Monday that he is stepping down as the governor of the Bank of Canada.
Carney told a press conference on Monday he accepted the job as governor of the Bank of England, confirming rumors that arose earlier this year he may be in the running for the job to replace outgoing BoE's Mervyn King. Carney will continue as Bank of Canada governor until June 1. His five-year term at the BoE begins on July 1, 2013.
"It was a difficult decision, but I think it was the right decision," Carney said, noting that he was honored to accept the role at such a critical time for the British, European and global economies. Carney will remain chair of the Financial Stability Board, a global body that monitors and makes recommendations about the financial system.
Canada's Finance Minster Jim Flaherty called Carney's departure bittersweet. "It is our loss. Of course it is," said Flaherty, addressing Carney as "Mark" and calling him a superb governor.
Carney, a former Goldman Sachs investment banker, brought a unique and
hands-on approach to the job. Given his experience in financial markets,
he is often applauded for successfully guiding Canada through recent
tough financial times.
Just before the press conference, the announcement was delivered by Britain's Chancellor of the Exchequer George Osborne to Parliament and was viewed as representing a big break from U.K. tradition, which normally sees insiders getting such high-profile jobs, market commentators said.
Who will replace Carney at BoC?
The sense of shock was felt widely as market watchers shifted attention forward: how will the move affect interest rates in Canada, given concerns about Canada's hot housing market and soaring household debt levels. Who will replace Carney?
So far, the market impact has been minimal, says Avery Shenfeld, chief economist at CIBC.
"The early reaction was to somehow think that the Bank of Canada had become less hawkish on interest rates so there was a little bit of a fall in short-term interest rates as a result. But I think that's a rush to judgment," he said. "I don't think that we can conclude with him gone we're somehow due for a bout of rate cuts."
Interests rates in Canada have held steady at 1 per cent, although the Bank has been hinting at the possibility of a rate hike.
Still, the Canadian dollar may struggle to find direction as speculation begins on who will take over at the central bank.
"Today the BoC is one of the most hawkish of the advanced economy’s central banks. Introducing uncertainty as to who will lead the BoC after June 1, 2013, is likely (Canadian dollar negative)," Camilla Sutton, chief currency strategist at Scotiabank, wrote in a research note.
It's anyone's guess who may be in line for the top job at Canada's central bank. But a few names have surfaced early as strong contenders including the bank's No.2, Tiff Macklem.