Malcolm Turnbull and Scott Morrison need to get on and do something, according to Morgan Stanley.
Tuesday’s decision by the RBA to leave rates on hold “only increases the pressure for the Turnbull-Morrison government to shift fiscal strategy”, according to a note to clients from Daniel Blake, Chris Nicol, Anthony Conte and Steven Ye.
Here’s Morgan Stanley:
Government rhetoric so far has focused on innovation and tax reform, which will be helpful longer-term, but we await clarity on any near-term infrastructure stimulus from the MYEFO, due before year-end.
Morgan Stanley has a bearish take on what’s happening in the Australian economy right now and believes that interest rates will head to 1.5% and stay there for a long time.
They included this chart in their note, showing some of the looming drags on economic growth in their forecasts:
As the Australian economics team sees it, the government will need to step in with some actual dollar spending on infrastructure or some other form of economic stimulus.
They say yesterday’s statement “suggests the RBA is reluctant to move ahead of any Turnbull ‘mini-Budget’ (early December most likely) or the FOMC (Dec 17). As a result, we move our next cut to 1Q16 and retain our second cut in 2Q16 to help engineer a soft-landing of the housing market.”
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