On a good day, central banking can be a hum-drum business. Borrowing costs and forecasts are nudged around a touch, but preferably not at all. Unfortunately, it’s the bad times that become emblematic — and addictive. It fell to a diverse set of officials this week to remind us that there isn’t a crisis everywhere, all the time.
The ructions of each decade are sometimes so seared into our brains that it’s hard to have another point of reference. The Asian financial collapse of the late 1990s, the subprime meltdown and Covid all left major scars. They pushed monetary policy from the business pages to the forefront of national decision-making. Not everything has to be nearly as dramatic, threats by US President Donald Trump to undo the global trading system notwithstanding.
When Reserve Bank of Australia Governor Michele Bullock was pressed by reporters on when further cuts in interest rates would be delivered, she pushed back vigorously. Guidance was yesterday’s business. Investors are skeptical, counting on at least a few more reductions to follow Tuesday’s quarter-point trim, the first since 2020. One overlooked response is worth revisiting: Bullock told the room that no matter what happened, the ultra-low rates that prevailed in the wrenching early years of the pandemic were the stuff of emergencies. They wouldn’t return to that vicinity, she said. For one thing, the outlook doesn’t justify it. The jobs market is still robust and inflation, though retreating nicely, is high enough to warrant a restrictive approach.
The RBA’s counterpart in New Zealand delivered a bigger easing and had no problem projecting at least two more. The nation’s slowdown justifies a further relaxation. Even here, though, there were limits. Further steps will likely be in increments of 25 basis points, not the half-point moves of the past three meetings. Tellingly, they would still leave the benchmark rate around the upper zone of what the Reserve Bank considers a neutral level, one that neither cheers growth nor holds it back. During the darkest days of Covid — and the peak of the inflation scare that followed — RBNZ Governor Adrian Orr proclaimed a policy of “least regrets.” The idea was that when faced with serious risks, better to do too much than look back and conclude too little was done. That approach works in a crisis; it’s not as helpful in days requiring less urgency.
The third refreshing outbreak of normality came from an unlikely place: Indonesia. The country’s economic policy has veered in unexpected directions the last few months, with reversals in value-added tax, budgets and interest rates. If anything, the surprise on Wednesday was Bank Indonesia’s decision at its conclave to hold the main rate in line with the expectation of a majority of economists. Conditions justified the status quo; inflation is on the way down, though the currency has been vulnerable.
None of these economies are on easy street. New Zealand has been in and out of recession, the expansion in Australia is intact but slowing, and Indonesia has been regularly intervening in markets to prevent a sharp weakening of the rupiah. All would succumb to any downdraft in the US. Though an American recession has been widely predicted, it hasn’t materialised.
Nor is this welcome projection of steadiness intended to erase the dangers posed by Trump. He was clearly on officials’ minds in Asia. There were the standard euphemisms about “geopolitical uncertainties.” In the patch these monetary authorities can control, calm was the best remedy. “Stability is the most important thing,” BI Governor Perry Warjiyo said at a briefing.
Can we adjust to a world without crisis? The week ought to remind us that there is quite a bit going right — at least in the sense it’s not going badly wrong. Upheavals are never good in the moment: growth vanishes, people lose jobs, businesses go bust. The scars never really heal. They inform the present and give us a framework for making sense of the past. Anyone who worked in Southeast Asia during the final years of the 20th century won’t forget how rapidly boom can turn to implosion.
During my decade in Washington, I heard a lot of people assert crises should never be wasted. The phrase is often attributed to Rahm Emanuel, a former chief of staff to Barack Obama. Paul Romer, who later won the Nobel prize for economics, said something similar in 2004, according to the New York Times. Regardless of its exact provenance, the observation is pithy and contains some truth. We do employ past tumult to help us figure out priorities and place events in some meaningful order.
This column isn’t intended as tribute to Pollyanna. Sometimes we need to take a breath and consider what’s resilient. Until the next unpleasant surprise.
Credit: Bloomberg
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