Carney takes centre stage ahead of Bank of England job

Wed Feb 6, 2013 7:05pm EST

* Coming UK cbank chief's debut appearance eagerly awaited

* Carney's policy ideas already helped push sterling lower

* Bank regulation also a focus

* Bank of England rate setters meet, no action expected

By William Schomberg

LONDON, Feb 7 (Reuters) - Britain's next central bank chief, Mark Carney, gets his first chance to show how he plans to fix the country's stagnant economy on Thursday, with expectations running high that the Canadian is set on change at the Bank of England.

Carney, the first foreigner to run the bank in its 318-year history, faces a three hour question-and-answer session with lawmakers that could also signal how he will bring his banking expertise to bear on Britain's crisis-hit banks.

After taking over at the Bank of Canada in 2008, Carney earned a reputation for successfully protecting his home country from the global financial crisis and he now faces the bigger challenge of getting Britain out of a rut of almost zero growth.

His new boss, finance minister George Osborne, hailed the 47 year-old former Goldman Sachs banker as "the outstanding central banker of his generation" when he made the surprise announcement in November.

Since then, Carney's various comments on policy have been seized upon as signals of what he plans to do when he takes over at the Bank of England on July 1, although he will be only one of nine interest rate setters.

"I think there will be quite a few changes," said Michael Saunders, an economist at Citi, such as a more flexible inflation target, setting clear signals on how long interest rates may remain low, more bond-buying and, possibly, a rate cut.

Carney promised to keep Canadian rates near zero for about a year in April 2009 as the global crisis intensified, before the idea was taken up by the U.S. Federal Reserve.

That kind of approach has raised eyebrows at the Bank of England. Several top officials have said it is not needed for Britain, in part because of concerns it could stoke the country's persistently above-target inflation.

Carney also stirred controversy in December by saying that, in times of crisis, central banks might consider targeting a mix of inflation and growth rates instead of just inflation.

Although not new nor specifically about his job in London, those comments were seen as radical by many British economists and media, prompting Osborne -- who sets the mandate for the Bank of England -- to say there would be a high bar to any change away from inflation targeting.

Other factors out of Carney's control include the British government's reluctance to increase spending significantly and the recession in the euro zone, Britain's main trading partner.

BANKS IN HIS SIGHTS TOO

Carney may choose to keep his cards close to his chest when he speaks to the lawmakers on Thursday, given that his first day at the Bank of England is five months away. The Treasury Committee he will address has no power to veto his nomination.

The signs that he may do more to stimulate growth rather than focus on inflation has already helped push down the value of Britain's currency, a help for exporters, said Rob Wood, an economist at Berenberg Bank in London.

"Without even taking over yet, he has therefore managed to improve the UK growth outlook," Wood said.

Carney will take over from Mervyn King who has been criticized for failing to head off the problems in the banking sector that snowballed into the financial crisis.

Carney comes to London with expert knowledge of the workings of banks, just as the Bank of England assumes new powers to regulate them.

Bankers in the City of London will not have forgotten how, in 2011, he clashed with Jamie Dimon, the head of JP Morgan Chase & Co, over the need for new capital requirements.

As well as running the Bank of Canada, Carney is head of the Financial Stability Board, set up by governments around the world to come up with new rules to reduce risk-taking by banks.

While he speaks in Westminster, King will be chairing one of the final Monetary Policy Committee meetings of his term. The MPC is not expected to expand its bond-buying programme.

Some economists expect the committee to give details of what the central bank will do with the money it will receive when the first government bonds it bought mature.

Around 6 billion pounds of redemptions are due in March and, reinvesting the money in more government bonds would avoid a slight tightening of monetary policy.

"We expect that the MPC will reinvest the gilt proceeds to maintain the QE target at 375 billion pounds, but this is not a done deal," Citi said in a research note this week.

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