Playing field not changed much for RBA after yesterday’s MYEFO - ANZ

Analysts at ANZ explained that with yesterday’s MYEFO, the Australian government succeeded in convincing ratings agencies it was on track to deliver a more sustainable fiscal path for the country.

Key Quotes:

"Though, we think that what was delivered merely buys more time – the government has hit base camp on a slow ascent of Everest. The Mid-Year Economic and Fiscal Outlook (MYEFO) continued to project a budget surplus in 2020-21, although the nearer term deficits are forecast to be somewhat larger as weaker economic parameters weigh on government revenue. Looking ahead, the hard work is just beginning."

"Passing of key legislation ahead of the May 2017-18 Budget will be critical if Australia is to maintain its AAA credit rating. As such, at a federal level, fiscal policy is unlikely to be able to provide much support to the economy in the year to come."

"This means the playing field has not changed too much for the RBA and the implications for monetary policy from yesterday’s MYEFO are limited. While Governor Lowe and former Governor Stevens have consistently made the case for increased government spending on infrastructure, it’s clear that the Commonwealth is not in a financial position to lift spending. Ratings agencies so far suggest the AAA rating is likely to remain until at least the May Budget."