KEY POINTS:
Alan Bollard's sudden shift in outlook this week had all the hallmarks of Muhammad Ali's famous rope-a-dope strategy.
After years of talking about inflation, inflation inflation, Bollard bounded off the ropes on Thursday talking economic gloom and doom and bringing forward the prospect of rate cuts. "Aha," he said. "Inflation is overrated and I can't control it anyway. I'm going to give this economic downturn a right old thrashing instead."
OK, that isn't a direct quote. But the strength of Bollard's more carefully chosen words indicated a desire to make the market go ooooooh ... at the very least. And it worked. The dollar fell, banks cut their two-year fixed rates and the collective sound of Kiwi consumers putting away their chequebooks for the next three years echoed through desolate city streets.
Boxing fans will recall that Ali's rope-a-dope strategy involved taking a pounding from the giant George Foreman. The trick was in the timing. Just as Foreman started to tire, Ali let fly with a flurry of strength which caught the bigger man by surprise.
For months now manufacturers, exporters and home owners have been trying to work out why Bollard has been prepared to let the country take an economic pounding from high interest rates and the high dollar. On Thursday it all became clear.
The tactic dates back to Genghis Khan. The idea is to let your enemy think they are winning then inflict maximum damage when they relax their guard.
Those familiar with the ancient columnist tactic - using pop cultural analogies to liven up a complex topic - may see one hole in the Muhammad Ali theory of monetary policy.
Bollard didn't actually throw any punches. He just talked tough about doing it later in the year.
But what he delivered was about as much of a surprise as the markets can cope with right now. The dollar fell by a cent and half. While the economy needs the currency to fall by more than that, it needs it to happen slowly or the price we pay for petrol and everything else will go through the roof. In the delicate world of economics, a June rate cut might have been a knockout punch for exporters but it would have caused a lot of pain for consumers.
The Reserve Bank's problem is that it is always fighting on two fronts, constantly assessing which is the greater threat - inflation or slowing economic growth.
By making a decisive assault on the economic slowdown some critics have accused Bollard of giving up on inflation. You can bet he hasn't.
He has just decided that it is the lesser of the two evils - for now. And he has done it dramatically and suddenly and with a great deal of thought about his timing.
So good on him. In the battle to keep this country out of recession Bollard is our lead tactician. Unlike a sports coach his success or failure isn't measured in black and white every four years. But like a sports coach there is only so much he can do in the face of bigger and meaner competition.
The scale of the global downturn is what will ultimately determine New Zealand's fate over the next few years. If oil keeps rising, and the US and UK head into recession, there isn't much Bollard can do to avoid some serious economic pain.
But if he gets it right then the outlook he is predicting isn't so bad. The three-year trough he's talking about for house prices and consumer spending means 18 months of real pain as things slow down - then another 18 months of low growth as the stalled economy gets momentum again. It isn't the Great Depression. It is a correction which would see the economy emerge rebalanced with the focus back on export-led growth rather than on domestic spending fuelled by a property boom and overseas borrowing. Here's hoping the good doctor gets it right. Alan Bollard, bomaye!
Liam Dann is the Herald's business editor.
