A rating downgrade does potentially raise the cost of borrowing.

But in a recent parliamentary hearing, Reserve Bank governor Philip Lowe described credit ratings as more "political symbolism" than economic importance.

Australia's two largest states lost their top status from Standard & Poor's this week.

NSW was cut by one notch to AA-plus and Victoria two to AA as a result of deteriorating budget positions because of the COVID-19 pandemic.

Even so, the global credit rating agency points out the cost of borrowing for Australian governments has never been lower.

"It was only a decade ago states were borrowing for 10 years at six per cent," S&P director Anthony Walker said.

Now it is just over one per cent.

"Clearly the RBA's initiatives are very supportive of the market," Mr Walker said.

The central bank is buying $100 billion of state and federal government bonds over the next six months to keep market interest rates low.

The NSW/Victoria downgrades will not reflect on Australia's AAA sovereign rating.

However, the nation remains on a negative outlook with the risk of it being cut in the next two years, if expected budget repair doesn't go to plan.

Even if Australia's rating was cut, it would not automatically flow on to the states unless they are rated the same.

"There is no waterfall affect to the other states, it would just mean that the state that is equated to the sovereign would also be downgraded," S&P's Rebecca Hrvatin said.

Mr Walker said the sovereign and the states and territories are measured differently when it comes to a rating.

For sovereign ratings, the wealth of a country is measured by its gross domestic product, but for the states it is against revenues.

One key difference for this is that the sovereign can tax the whole economy, whereas the states can't.

Looking at other states, Ms Hrvatin said Western Australia, rated AA-plus/stable, is a standout.

"WA's budgetary performance is expected to be one of the best of Australian states or territories by some distance," she said.

"They are benefiting from high iron ore prices and favourable GST distribution."

The iron ore price is currently at $US150 ($A200) per tonne, a seven-year high.

Australian Associated Press