Australia slashes rates to all-time low amid slow growth, job fears

Australia’s central bank cut interest rates for the third time this year amid fears about the flagging domestic economy. (AFP)
Updated 01 October 2019
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Australia slashes rates to all-time low amid slow growth, job fears

  • Australia has had 28 years of expansion without recession

SYDNEY: Australia’s central bank cut interest rates for the third time this year on Tuesday in a bid to stimulate a sluggish economy and signaled it was prepared to do more if needed, knocking the local dollar to a one-month low.

The country’s economy has expanded for 28 years without a recession, but risks have intensified over the past year, with growth slowing, inflation lukewarm, the property market subdued and unemployment ticking higher.

The Reserve Bank of Australia’s (RBA) quarter-point cut took the cash rate to an all-time low of just 0.75 percent, leaving little room for more reductions and raising the possibility of unconventional policy easing.

RBA chief Philip Lowe said moves by global central banks to ease monetary policy played a part in the decision as he signaled the need for an extended period of low rates.

Financial futures are now pricing in a 60 percent chance of a fourth cut to 0.5 percent in November, compared with under 30 percent before the latest decision.

Expectations that rates will be lower for longer sent the Australian dollar slipping to $0.6706, its weakest since early September.

“In cutting rates so aggressively this year, the RBA is hoping to generate a stronger labor market, higher wage growth and to stimulate domestic consumption,” said Anthony Doyle, a Sydney-based, cross-asset strategist at Fidelity.

“Fortunately for the RBA, the transmission mechanism of monetary policy is fairly quick in the Australian economy,” he said, noting around 80 percent of mortgages were on variable rates.

The RBA’s back-to-back easings in June and July have so far done little to boost activity outside of the housing market.

Indeed, figures earlier in the day showed home prices across Australia’s capital cities jumped 1.1 percent in September, but approvals to build new homes collapsed to the lowest since 2013.

Economists expect construction-related job losses in coming months which could take the unemployment rate to as high as 5.5 percent from 5.3 percent now and the RBA’s goal of around 4.5 percent.

“The RBA now has only three, or possibly even fewer, more conventional cuts available before they will have to venture into unconventional monetary easing territory — negative rates, QE (quantitative easing), or bond yield targeting,” Rob Carnell, chief Asia-Pacific economist for ING said.


As world fractures, experts weigh in on the politics of AI at WGS

Updated 26 sec ago
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As world fractures, experts weigh in on the politics of AI at WGS

  • e& group CEO Hatem Dowidar said there was increasing pressure to choose between the Chinese and US ecosystems

DUBAI: Across three days of rigorous debate at the World Government Summit in Dubai, experts from some of the world’s largest tech and telecommunication companies debated what the future political landscape of artificial intelligence development would be.

Speaking at the summit on Thursday, e& group CEO Hatem Dowidar said there was increasing pressure to choose between the Chinese and US ecosystems, which could have impacts on the sovereign capabilities of countries, like Gulf Cooperation Council member states, which thus far have stayed in the middle.

“I think the fracture and the pressure today is if you use this technology, you cannot use the other. You must separate them completely and this is something that never happened before,” Dowidar said.

He warned that whilst people around the world currently have access to both the leading large language models in the US and China, ChatGPT and Deepseek, this would not always be the case, and middle powers would need to develop their own capability to maintain their sovereignty.

“Europe is trying to find its own way as well, because Europe — having been caught now in the middle — they don’t have platforms, they don’t have the data center capability,” he said.

“So now, Europe is focusing a lot on building sovereign capability, sovereign data centers to run AI applications within Europe.”

Dowidar said the GCC had been ahead of the curve in this regard, having worked out early on that sovereign capability would be necessary in the new multipolar world and subsequently investing heavily in local infrastructure and capability.

“We were lucky here in the region that already — I would say a couple of years ago —we have kind of ironed out how this works,” he said.

“I think that everyone will try to see how they can either utilize the global platforms in a sovereign manner, or they end up trying to push to develop their own platforms.” 

This sentiment was echoed by Chamath Palihapitiya, the founder and managing partner of Social Capital, who said that China’s dedication to open-source models — whose code is released under a license granting users rights to view, study, modify, and redistribute it freely — could make Chinese AI more popular in the long run for nations looking to keep some level of sovereignty.

“I do think that there are a handful of American open-source models that are quite good. I think Nvidia’s models are excellent. But in fairness, the Chinese open-source models are just superb,” he told the summit on Wednesday.

“It’s going to be important for every country to make their own decisions about their own sovereignty, and in that realm, I think the open-source models provide the clearest path, because it just gives you total transparency to what’s happening underneath the hood.”

This was reiterated by Joseph Tsai, the chairman and co-founder of Alibaba Group, who said Chinese open-source systems would be favored by middle powers — but warned they had yet to find a way to be economically self-sufficient. 

“Because countries care about the sovereignty aspect and care about their data privacy, you can take an open-source model and deploy it on your own infrastructure … giving you ownership and control” he said.

“But it remains to be seen how economically all the model companies are going to make it sort of sustainable with an open-source approach … This is the biggest challenge for the Chinese firms.”