China is expected to raise interest rates once more before wrapping up its tightening policy by the end of this year as it tries to moderate runaway economic growth, Credit Suisse said recently.
To avoid attracting more hot money inflows through fast interest rates hikes that narrow the spread with US rates, China's use of conventional monetary policy tools has to be small and gradual, allowing it to mop up excess liquidity slowly, Credit Suisse's chief Asia economist Dong Tao (
Tao anticipated one more rate increase of 27 basis points before the tightening cycle is halted by year's end, provided that the measures show a clear effect, he said.
Last Friday, China's central bank announced it would increase interest rates by 27 basis points, lifting its one-year benchmark lending rate to 6.12 percent per annum and one-year benchmark deposit rate to 2.52 percent per annum.
The announcement marked the second increase in rates this year, and the first for the deposit rate since October 2004.
The increases came after the country last month boosted its reserve requirement ratio by 50 basis points for the second time, in the hope of cooling investment.
"The [increase] in both deposit and lending rates is a much more efficient and credible monetary tightening than a reserve requirement hike or other purely administrative tightening measures," Goldman Sachs' China economist Hong Liang (梁紅) said.
Increased borrowing costs are a much more effective tool to keep investment growth under control, Liang said.
Goldman Sachs also forecasts another hike of 27 basis points in both lending and deposit rates by the end of this year.
Both economists expected China to speed up the appreciation of its currency against the US dollar by widening the daily trading band, as Beijing sees this as another move toward tightening.
Deutsche Bank said earlier this month that it expected the Chinese currency to strengthen by 3 percent to 4 percent, to a level of 7.75 versus the US dollar in the next 12 months.
Since the country's tightening measures are expected to ease economic growth instead of causing a sharp slowdown, Credit Suisse retained its annual GDP forecast for China at 10.5 percent this year and 9.5 percent next year.
Meanwhile, the US is expected to raise its benchmark interest rates once in the autumn after earlier this month deciding to hold interest rates steady for the first time since June 2004, according to Deutsche Bank Group's chief economist Norbert Walter.
The US headline inflation, which exceeded 4 percent last month compared with a year ago, remained too high, Walter said in an address before the European Chamber of Commerce Taipei last Friday.
The US Federal Reserve would hold steady, and then move to cut rates next August once it ascertains inflation is contained, he said.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to