Australia keeps AAA-rating as Fitch sees hike cycle end

The news: Credit rating agency Fitch has reaffirmed Australia's AAA rating and predicts the Reserve Bank is finished with its interest rate hiking cycle.

The numbers: Fitch expects Australia's economic growth to slow to 1.7% in 2023 and 1.5% in 2024, down from 3.7% in 2022. The ratings agency noted Australia's financial sector remains strong, with a low non-performing loan ratio of 0.9% and a low chance of households falling into negative equity as home prices continue to rise with the immigration recovery underscoring demand. The high interest rate environment will likely dampen consumer spending, Fitch said, but is unlikely to pose any financial stability risks.

The context: Fitch said the cumulative effects of the Reserve Bank's hikes to a cash rate of 4.35% would likely bring inflation back within the 2%-3% target over the next two years. In its monthly monetary policy statement, the RBA revised its inflation expectations slightly upwards, but it expects price growth to return to within the target band by December 2025.