Budget deficit, Royal Commission and election risk

The shrinking budget deficit gives the Coalition government a bit more fiscal ammunition to deploy ahead of Australia’s next Federal election, while there is no way of knowing at this stage how the Royal Commission will influence the opinion polls. What is clear, though, is that the political uncertainty and Royal Commission are two more reasons for the RBA to keep interest rates at 1.5% next week and, in our view, for another two years yet.