Australia’s central bank cut its cash rate to an all-time trough of 2.25 percent yesterday, breaking an 18-month hiatus on stimulus as it seeks to spur a sluggish economy while keeping downward pressure on the Australian dollar.
The currency duly sank more than US$0.10 after the Reserve Bank of Australia (RBA) ended its first policy meeting of the year by announcing the quarter point cut.
“Overall, the bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected,” RBA Governor Glenn Stevens said in a brief statement.
“This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target,” Stevens said.
Markets had been leaning toward a cut this week, though only 9 of 29 analysts in a Reuters poll had tipped a move.
Interbank futures jumped on the news, while pricing in a near 50-50 probability of a further move to 2 percent at the next policy meeting in March.
Yields on 10-year government debt had already been trading below the cash rate and dropped further to a record low of 2.36 percent, while Australian stocks hit their highest since 2008.
“It’s very clear their assessment of the outlook for activity is weaker,” RBC Capital Markets senior economist Su-Lin Ong said, adding that the RBA was now likely to trim forecasts for growth and inflation in its quarterly statement on monetary policy due out on Friday.
“We have rates at 2 percent and the risk is that it heads lower,” Ong said. “We are stuck in this sub-par period of growth for a long time.”
It was the RBA’s first easing since August 2013 and marked a sharp turnaround from its previous meeting in December last year when it had signaled a period of stability for policy.
The move was partly aimed at offsetting painful price declines for many of Australia’s resource exports, which are hurting both companies’ profits and mining investment.
The situation has been made all the tougher by a protracted slowdown in China, Australia’s biggest export market.
The move was given extra urgency by the recent rush to ease by other central banks, meaning the RBA had to follow suit if only to stop its currency from rising to uncompetitive levels.
Indeed, Stevens cautioned that “a lower exchange rate is likely to be needed to achieve balanced growth in the economy.” The dollar obliged by falling more than US$0.10 to US$0.7670.
The outlook for domestic inflation had also moderated, as petrol prices plunged and wage growth stayed stuck at decade lows. Core inflation is now expected to hold near the floor of the RBA’s 2 to 3 percent target band for much of this year.
An added wrinkle is political uncertainty, as speculation swirls around the future of Australian Prime Minister Tony Abbott.
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