Why Australia must protect its AAA rating

By Leith van Onselen

Fairfax’s Jonathan Shapiro has penned a ‘dummy’s guide’ on Australia’s AAA credit rating, which included an analysis of whether losing this rating actually matters:

The cost of a credit rating downgrade is hard to quantify, especially for a government. In theory, a lower credit rating should lead to borrowers demanding a higher return for the risk they’re taking. In the case of Australia however, since all its debt is denominated in Australian dollars which it is able to print, it can never technically default. This means Australia’s borrowing costs are determined by expectations of where the Reserve Bank will set the cash rate…