‘They Did it First’ Is Central Bankers’ Alibi in Race to Bottom

(Bloomberg) --

Central bank chiefs from Australia to India are pointing the finger at the wave of global monetary easing to help justify their latest interest-rate cuts.

Reserve Bank of Australia Governor Philip Lowe in August warned peers gathered at the annual Jackson Hole confab that additional stimulus risked driving up asset prices. Yet this week he shunted aside any such concerns as he pushed his own benchmark interest rate to a record low. He laid the groundwork for that by explaining his currency could strengthen if he didn’t act too.

India’s Shaktikanta Das on Friday delivered his fifth-straight reduction. With echoes of Mario Draghi’s “whatever it takes” vow, Das said he’ll remain accommodative for “as long as it is necessary” to revive growth. And he also pointed to the global shift to easier policy.

A soft jobs report Friday could seal the case for Federal Reserve Chairman Jerome Powell to cut again on Oct. 30. And speculation is heating up that Bank of Japan Governor Haruhiko Kuroda will need to push his key rate deeper into negative territory -- if for no other reason but to avoid an untimely strengthening of the yen. As for incoming European Central Bank President Christine Lagarde, the prospect of a no-deal Brexit may add to reasons to ease more.

With virtually all the world’s major central banks easing (China is somewhat of an exception) and pointing at each others’ shifts as reasons to act, the race to the bottom risks blunting the policy impact.

Sure, lower borrowing costs may help spur the economy if there’s enough demand for credit, and repaying existing debts becomes cheaper, freeing up cash for spending. But the currency channel -- the weakening you’d normally expect if a country was alone in cutting -- is negated.

“If everyone is easing, there is no exchange-rate channel,” Lowe himself said in June.

The spanning-the-globe easing is also driving down bond yields, running the risk of creating inflated asset s and the related stability risks that Lowe and others have been warning about.

At least the blame will fall on many shoulders if the race to the bottom ends badly.

©2019 Bloomberg L.P.