August rate cut hopes dim further following upbeat Glenn Stevens "Lucky Country" speech: Commsec, ANZ

The upbeat assessment of the Australian economy by RBA governor Glenn Stevens in his “Lucky Country” speech in Sydney yesterday has further dimmed chances of rates being cut in August, according to both Commsec and ANZ.

Commsec chief economist Craig James says the governor’s speech was designed to “outline the facts rather than fallacies about Australia’s economic performance and the potential to handle future shocks”.

“The Reserve Bank governor reportedly noted that policy settings are about right. While that doesn’t preclude a rate cut in August, the factors would need to present, such as further instability in Europe and a low domestic inflation result."

“CommSec is still pencilling in a rate cut over the next few months,” James says.

A similar assessment of the tone of the speech was made by ANZ Research in its latest economic update.

“RBA governor Glenn Stevens today delivered a fairly upbeat assessment of the Australian economy in his speech entitled ‘The Lucky Country’,” says Craig Michaels and Dylan Eades of ANZ Research.

Michaels and Eades note Stevens' argument that Australia has made its own luck in delivering a “remarkably good” performance against a very turbulent international background, Stevens' contention that concerns underlying weaknesses in the Australian economy are overstated; and that even if downside risks do materialise, Australia is well placed to manage them.

“Importantly, the tone of the speech suggests that the hurdle for significant interest rate cuts is much higher than markets are currently pricing,” they say.