Westpac’s Bill Evans predicts record rate cuts

Westpac’s Bill Evans predicts that the RBA will cut the cash rate to as low as 0.75%.

Cutting rates, especially from this low a base, is not a bullish sign. It will warn of RBA concern at the pace that the economy is contracting. Central banks are data-driven. They do not anticipate recessions, they react to them.

My own thoughts:

  • The RBA needs to keep its powder dry. We are likely to face a severe contraction when China goes into recession because of the trade war.
  • Household debt is still dangerously high and is impacting on economic growth.
  • The bubble in housing prices threatens our already under-capitalized banks.
  • Tax cuts will provide some stimulus but it’s time for Scott Morrison to step up to the plate and spend big on infrastructure.
  • Infrastructure spending must be directed towards productive assets, else you end up with fiscal debt and no assets/income to service it.
  • Australia needs to abandon its houses and holes strategy and build a multi-faceted economy with a strong emphasis on technology and services.