Kathryn Lee - 30 Jun, 2020

Australia’s AAA credit rating reaffirmed

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Australia’s AAA credit rating status has been reaffirmed by Moody’s Investor Service, despite the COVID-19 economic hit.

The service reaffirmed the rating in a report released Tuesday night, noting Australia’s economic strength and stability as being key underpinnings of the decision.

“The rating affirmation and stable outlook reflect Moody’s expectation that Australia’s economic and institutions and governance strengths will continue to support the sovereign’s resilience in the face of shocks including the current coronavirus pandemic,” the report said.

“… Australia’s economic strength, the result of a range of structural factors that support robust growth potential and generally stable growth, will continue to underpin the sovereign’s AAA rating, notwithstanding the deep economic shock caused by the coronavirus.”

Australia has now had its top AAA credit rating reaffirmed by all three global ratings agencies and is one of only 10 countries to do so. Other ratings agencies, Standard & Poor’s and Fitch affirmed Australia’s ratings in April and May, respectively.

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Australia’s high status sits the country among nine other countries including Denmark, Luxembourg and the Netherlands.

Speaking of the news on Wednesday morning, Treasurer Josh Frydenberg told ABC News Breakfast “this statement overnight by Moody’s is a real vote of confidence in the Australian economy,” he said.

“… what Moody’s said in their statement is there has been effective and proactive policy making by the Government and relevant agencies and of course, that the Australian economy remains remarkably resilient.

So, this is really good news and it does affect the cost of borrowing, not just for the Federal Government but for state governments and for private lenders like banks.”

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Market Economist Stephen Koukoulas told Sky News Australia that he believes Australia’s reaffirmed AAA rating is encouraging.

“… It’s always encouraging to see the AAA credit rating reaffirmed. It’s better to have it than to have junk status on sovereign bonds, because that means very high-interest rates and difficulty raising debt,” he said.

Mr Koukoulas also stressed the importance of having a high credit rating, especially those from Moody’s, Standard & Poor’s Global Ratings and Fitch Ratings, as it becomes a benchmark for investors.

“They are an assessment of risk and if you’ve got a AAA rating it implies that you’re of good credit, you’re very unlikely to default on debt, you’ve got a sound economy and you’re growing strongly,” he said.

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In its report, Moody’s marked Australia’s AAA status as “stable,” meaning it believes risks are “contained by the underlying resilience” of the economy as well as “Australia’s effective policy-making institutions.”

This was in contrast with Standard & Poor’s and Fitch’s assessments earlier this year, where although each marked Australia with a AAA rating, both concluded the rating as having a “negative outlook” due to the coronavirus pandemic.

Moody’s however, concluded a future negative outlook as being unlikely, but listed what actions could put downward pressure on the rating.

“Evidence that the effectiveness of the country’s policymaking institutions was diminishing would likely put downward pressure on the rating. In particular, a sustained and marked deterioration in fiscal and debt metrics not compensated for during periods of robust economic growth would weigh on the rating,” the report said.

Words by Kathryn Lee

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