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BOE May Become More Hawkish Under a Governor Rajan, RBC Says

Bank of England could tilt toward a tighter policy bias should Raghuram Rajan become the next governor, according to RBC.

BOE May Become More Hawkish Under a Governor Rajan, RBC Says
Raghuram Rajan, former governor of the Reserve Bank of India (RBI), reacts during a news conference in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

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The Bank of England could tilt toward a tighter policy bias should Raghuram Rajan become the next governor, according to the Royal Bank of Canada.

The deadline for applications to replace Mark Carney passed last week, and the former Reserve Bank of India governor is seen as one of the most likely candidates to win the race. His chances have been boosted when Chancellor of the Exchequer Philip Hammond stressed the need to look internationally for the next appointment, though it’s not clear if he will still be in his job when the decision is made.

Rajan introduced inflation targeting during his three-year term as RBI Governor, an experience that could inform his views if he takes over at the BOE, RBC’s Cathal Kennedy and Vatsala Datta, wrote in a note dated June 12. The Monetary Policy Committee is currently indicating the need for more interest rates increase to control price gains, even if investors believe Brexit and a global slowdown could force them to move in the other direction.

“Given his focus on inflation targeting during his time at the RBI, as well as some criticism against QE, it is possible that that under Rajan, the MPC’s bias would shift somewhat toward a tighter policy, especially if the inflation forecast continues to overshoot the target in the medium term, as is currently the case,” they wrote.

Current BOE chief economist Andy Haldane “may be most open to changing how the Bank goes about its business,” the analysts wrote, although his policy views are harder to pigeonhole.

The appointment of current deputy governor Ben Broadbent would “be likely to see the least substantial shift in bank policy,” RBC said, whereas his fellow MPC members Jon Cunliffe and Dave Ramsden would be more dovish choices.

The views of Andrew Bailey, the current frontrunner and head of the Financial Conduct Authority, and Santander Plc chair Shriti Vadera, are unclear, making them harder to categorize, RBC said.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;Jill Ward in London at jward98@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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