The total decline of 400 basis points since August – as rapid an easing as any in Australia’s history – takes monetary policy to a clearly expansionary setting. The Government has also implemented a major discretionary easing of fiscal policy, and the exchange rate is significantly lower.
I would not dispute that fiscal consolidation leads to a contraction in the short run, but then you have to ask yourself: what can you do to mitigate this. Improvement in budgetary positions should elicit some positive market response, lower spreads and lower cost of credit.