Investors have all bet the house that central banks around the world will cut their benchmark interest rates to offset the threat posed by the coronavirus outbreak.
And that's probably going to force the Reserve Bank of New Zealand's hand, especially if its Australian counterpart goes later today.
Interest rate markets were already starting to price in a response by central banks last month, but they doubled down on that when Federal Reserve chair Jerome Powell came to the party last week, saying his bank would use its tools to support the world's biggest economy.
Of course he would. He's already at odds with US President Donald Trump, who seems to take every opportunity to have a jab at him for not keeping the cheap money coming. And nobody wants to have their hand on the wheel when a recession comes a-calling.
Other central banks have said they would also chip in, helping spur a recovery on Wall Street, and even on our own NZX.
As one master of the understatement pointed out, things are very volatile.
The funny thing is that it took the prospect of a coordinated response by largely developed central banks to calm markets, rather than the shutting of borders and meeting of minds by governments.
The near zero interest rate policies and asset purchase programmes run in response to the global financial crisis may have averted a global depression, but they've had all manner of other unintended consequences, such as inflated asset prices.
Maybe people will pay more attention to the fiscal response once central bankers and finance ministers from the world's seven biggest economies hunker down and try to work out what should be done.
Federal Reserve chair Jerome Powell. Photo / AP
Because while everyone agrees that the fiscal response is the important one, they're all betting on a monetary one.
The problem is that we've been living on cheap finance for more than a decade now and there isn't much leverage left in the old blunt instrument.
When the GFC hit in 2008, then RBNZ governor Alan Bollard could slash the official cash rate from 8.25 per cent to 2.5 per cent over the course of 10 months. And in the real world, that led to floating mortgages offered to new customers slumping from 10.9 per cent to 6.4 per cent.
Since then, money's only got cheaper with a floating first mortgage down at 5.3 per cent, and banks offering special one-year deals at little more than 3 per cent.
So would it be a fool's errand for the Reserve Bank to cut in this environment?
Monetary policy might be independent, but it doesn't operate in a vacuum. And little old New Zealand sticks out like a sore pinky if it doesn't fall into line.
What's more, if the RBA cuts today, it's almost a sure bet the RBNZ will have to follow later this month.
That shouldn't be a surprise.
At its February review, the RBNZ's decision making committee discussed the policy implications if the virus outbreak was larger and more persistent than the short, sharp shock that was initially predicted, and that there was time to adjust when more information became available.
And while assistant governor Christian Hawkesby showed a distinct lack of appetite to cut rates, telling London-based market news outlet MNI that monetary policy wasn't the right tool and that there were all manner of ways the government could respond, it wouldn't be the first time it was a reluctant cutter.
And if fiscal policy is to do the heavy lifting, it will probably have to come through the May 14 budget. Not exactly an emergency timeframe.
Pedestrians wearing masks walking along a shopping street in Shanghai. Photo / Bloomberg
Which is what ANZ's New Zealand chief economist Sharon Zollner got at when she said she expected the official cash rate to be cut half a percentage point to 0.5 per cent this month, and by another quarter-point in May to 0.25 per cent.
Fiscal policy would do the main job, but monetary policy would have to be looser to keep the kiwi dollar near an 11-year low, to make finance even cheaper for businesses, and ultimately provide a buffer to confidence.
The question for New Zealand's policy makers is what's to be gained by making such a big call? And can they make the right signals without over-committing?
The OECD has warned that the covid-19 outbreak posed the biggest threat to the global economy since the GFC more than a decade ago. It chopped half a percentage point from its forecast for global growth to 2.4 per cent in 2020 at a time when international trade remained weak after the protracted trade war between the US and China.
However, while it reckoned monetary policy needed to be accommodative, the fact that central banks around the world have been running extraordinarily loose settings means anything extra will only have a modest impact, especially if governments don't come to the party on fiscal policy.
In fact, it pointed to the low rate environment as giving governments the chance to make long-term infrastructure investments cheaply and provide a short-term economic boost.
So far, the government's responses have focused on protecting the public by imposing travel restrictions, with support mechanisms for businesses and the tourism sector very much in the early stages.
However, it's worth noting that the Treasury is leading the economic advisory group, of which the Reserve Bank and Financial Markets Authority are both members, to coordinate the response to the outbreak.
Isolation works for patients, not for planning an economic response.
