Will a new Bank of Canada governor shake up interest rates?

Mark Carney's successor as governor of the Bank of Canadais not expected to implement aradical change in interest rate policy and most likelywill holdthe current underlying philosophy, which includesa hawkishattitude toward inflation.

Speculation has already begun about possible candidates to replace Carney, who announced on Mondaythat he will step down next June to become the next governor of the Bank ofEngland.

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, butthe 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 wellwith that group of people."

The Bank of Canada hasa two per cent target for inflation, which means that if inflation should exceed that level, interest rateswould be increased to keep it in check. With theCanadian economy growing slightlythe OECD yesterday predicted moderate growth for Canada in 2013 inflation might go up as well, which meansthe next governor could end up raising interest rates.

The Paris-based Organization for Economic Co-operation and Developmentsaid in its reportthe 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 asa new governor having a different policy objective than his predecessor.

"If [Carney] saw that inflation rose consistently above thetwo per cent mark, he'd most certainlyincrease interest rates."

As for governorcontenders, 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 haveadeep and solidunderstanding of the macro economy, the capital marketplace, financial markets andthe overall banking system.

"Monetarypolicy 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 cues from monetary authorities. And so you have to have avery, very solid understanding of all these dimensions," said Gagnon.

The boardof the Bank of Canada vetscandidates for the governor's job and comesup 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 bean 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 qualifiedpossible contenders. But withcontinuity 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 Ct and Timothy Lane could alsobe 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 ofthe Superintendent of Financial InstitutionsCanada, would be her top pick.

"Her experience, expertise on the regulatory side would bea wonderful addition," Croft said."It's something Mark Carney was very interested in. It was one of his comparative advantages andshe has it in spades."

Croft also said Stephen Poloz, presidentand 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.