Orr holds nerve as epidemic’s global shadow spreads

In times of crisis it’s important that our leaders hold their nerve.

Nobody wanted to see a panicked reaction to coronavirus from the Reserve Bank.

Reserve Bank Governor Adrian Orr and his monetary policy team certainly played it cool yesterday — holding the official cash rate at 1 per cent and parking the epidemic in the “downside risk” basket.

As the number of cases and deaths continues to rise it’s easy to find reasons to worry about the outbreak.

It’s much harder to find evidence suggesting it will abate any time soon.

On that basis some will see Orr’s stance as so calm, they’ll be wondering if he still has a pulse.

But the timing of this announcement forced the Reserve Bank to make one clear choice — to try to quantify the impact of the virus . . . or not.

To do so would have put the Bank at the front of central banks around the world, effectively guessing at the outcome with no more insight than any other interested observers.

A rate cut yesterday would have grabbed global headlines, feeding into fears of global economic fallout.

The Reserve Bank did cut its GDP forecasts for the first quarter (from 0.7 per cent to 0.4 per cent) but that appears to have been largely offset by the view that the rest of the economy is in better shape than it previously thought.

The trade war has abated, the terms of trade have been strong, unemployment is low and we’ve now got a big new chunk of Government spending on infrastructure adding to stimulus.

Having made the call to view coronavirus as an unknown entity (a known unknown, for fans of Donald Rumsfeld’s uncertainty matrix) the monetary policy committee has opted to watch and wait.

That has left with them with little more to say on the issue.

If the outbreak does prove worse than expected — if it spreads more widely outside China or remains disruptive into the second quarter of the year — then “monetary policy had time to adjust”, they said.

In other words they could still cut rates further.

But they have deliberately opted not put any special weighting on that possibility in their commentary.

Without the shadow of coronavirus this would have been a very upbeat monetary policy statement.

It would have indicated that the cycle of rate cuts was over.

The market would likely have been pricing in the prospect of rate hikes.

As it stands now, that prospect looks highly unlikely.

As for the virus effect, well, we’ll just have keep calm and carry on.