This is a pandemic panic. Rate cuts aren’t going to cut it.
So the RBA cut rates last week.
No real surprises there.
As 2019 came to a close, I was saying my base case scenario was for one or two rate cuts in the first half of 2020.
… And then we had the bushfires.
… And now we have the Corona Virus.
And with the outlook for inflation and unemployment already too thin for comfort, and GDP this quarter set to print a doughnut, the RBA didn’t really have a choice.
But I actually think they’re behind the curve here.
And they’ve pretty much just got one rate cut left in the barrel now. After that, they can’t push rates any lower and they’ve got to come up with something else.
And so they’re out of ammo.
And for what?
What is 25bips going to do for us now?
Normally, rate cuts are meant to inject the economy with confidence. That’s what normally happens, but you want to talk about confidence? My local Woolies is still out of toilet paper!
People are getting in a flap about Corona Virus. They’re in a panic. And economically speaking at least, there’s very good reason for that.
The first round battered our tourism and education sectors. Now our major trading partners look like they’re on the verge of a shut-down.
And that’s all before flu-season in Australia hits.
There’s a lot of dark clouds and not much silver lining.
Oh no, there’s one silver lining. 25bps of rate cuts.
Thanks. We feel so much better.
I actually think the cut is wasted. I think the RBA should of held fire and kept its powder dry.
But it had to do something, so I think it should have jumped straight over to QE – Quantitative Easing – aka, money printing.
“Fire up the helicopter money, Phil.”
This is what a handful of countries have done already.
In Hong Kong, permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200.)
The government will also provide a guarantee on loans taken out by companies to pay wages and taxes.
In Macau, the government is giving residents shopping vouchers, while in Singapore, people will get between US$100 and $300 in a one off payment.
And over in New Zealand, they’re paving the way for their own QE measures.
This is what Australia should be doing.
This isn’t your ordinary, garden-variety confidence hit. This is a pandemic panic.
Time to nip it in the bud.
Fire up the helicopter, and start dropping money on people. Nothing says good times like free cash.
And drop off some toilet paper while you’re at it.