Mark Carney's successor as governor of the Bank of Canada is not expected to implement a radical change in interest rate policy and most likely will hold the current underlying philosophy, which includes a hawkish attitude toward inflation.
Speculation has already begun about possible candidates to replace Carney, who announced on Monday that he will step down next June to become the next governor of the Bank of England.
But it's unlikely that the new Bank of Canada governor will diverge from Carney when it comes to setting interest rates here, says Louis Gagnon, a finance professor at Queen's University School of Business.
"In this business you're either hawkish or dovish. Hawkish people are very suspicious of inflation and dovish people are slightly more accommodating. [Carney] is in the hawkish camp," Gagnon said.
"I think the Bank of Canada as an institution, not only the governor, but the body, is hawkish. I'd be very surprised if they were to select someone who has a different philosophy because that person would not sit well with that group of people."
The Bank of Canada has a two per cent target for inflation, which means that if inflation should exceed that level interest rates would be increased to keep it in check. With the Canadian economy growing slightly — the OECD yesterday predicted moderate growth for Canada in 2013 — inflation might go up as well, which means the next governor could end up raising interest rates.
The Paris-based Organization for Economic Co-operation and Development said in its report the Bank of Canada may need to start raising interest rates from near record lows by the latter half of 2013.
However, Gagnon said that such a move shouldn't be interpreted as a new governor having a different policy objective than his predecessor.
"If [Carney] saw that inflation rose consistently above the two per cent mark, he'd most certainly increase interest rates."
As for governor contenders, Gagnon said there's no pecking order right now and that it will be a long time before a shortlist is created.
He said the candidate must have a deep and solid understanding of the macro economy, the capital marketplace, financial markets and the overall banking system.
"Monetary policy is so crucial. It's central to everything. It establishes the short-term interest rate, which itself is the starting point of the credit marketplace.
"So credit markets take their queues from monetary authorities. And so you have to have a very, very solid understanding of all these dimensions."
The board of the Bank of Canada vets candidates for the governor's job and comes up with a short list, from which the government chooses.
Finn Poschmann, vice president of research at the C.D. Howe Institute, said that with Carney leaving after just over five years in a seven-year term there may be an incentive for the board to look for continuity.
This is one of the reasons that Tiff Macklem, the senior deputy governor at the Bank of Canada, has been suggested as a leading candidate. Macklem has been with the Bank of Canada for a number of years, and also spent time in the finance department.
"There's of course no shortage of qualified possible contenders. But with continuity an incentive if not an imperative then you look inside for an experienced hand," Poschmann said. "They don't have to look very far for someone with the right set of experiences, both through Tiff's work on previous jobs including the department of finance."
If continuity is important, then Bank of Canada deputy governors Agathe Côté and Timothy Lane could also be up for consideration.
Another possible contender is Jean Boivin, the associate deputy minister of finance and former deputy governor of the Bank of Canada.
Don Drummond, TD Bank's former chief economist, who spent years in senior roles at the department of finance, could also be a candidate. But Drummond said on Monday that he wasn't interested in the job, Bloomberg News reported
Economic analyst Patti Croft said Julie Dickson, who heads the Office of the Superintendent of Financial Institutions Canada, would be her top pick.
"Her experience, expertise on the regulatory side would be a wonderful addition," Croft said. "It's something Mark Carney was very interested in. It was one of his comparative advantages and she has it in spades."
Croft also said Stephen Poloz, president and chief executive officer of Export Development Canada, who is an economist with global experience, would be a good choice.
"The important thing is there's a remarkable pool of talent they can draw from," Croft said.