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Vital Signs: goodbye AAA Australia?

Richard Holden writes in The Conversation (8.7.16) about the implications of a credit rating downgrade for Australia's economy, as flagged by one of the leading ratings agencies.

'Votes from the Australian federal election continue to be counted, and uncertainty remains on whether the Liberal-National Coalition will be able to form government. But that wasn’t the the only event of note this week.

'The most predictable (non)-event was the Reserve Bank’s decision to leave the cash rate on hold at 1.75%. This was widely anticipated by markets –in no small part because previous announcements by the RBA basically said they were going to wait for next quarter’s inflation figures before deciding to move.

'Those figures are out before August’s RBA board meeting. And if they show distressingly low inflation – or deflation, as last quarter’s did – then expect a 25 basis point cut. Bond markets are certainly expecting that.

'... But the big news was ratings agency Standard & Poor’s placing Australia on negative credit watch on Thursday.

'Australia is one of a small number of countries that enjoy a AAA rating. That lowers borrowing costs for banks – and hence businesses and consumers.'


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