RBA Keeps Rates Steady, Says All Policy Options Remain on the Table
The RBA left its official cash rate on hold, which was widely expected by economists
The RBA left its official cash rate on hold, which was widely expected by economists
SYDNEY—The Reserve Bank of Australia said Tuesday that it still can’t rule out the possibility that interest rates will need to be raised further, adding that inflation remains too high and is expected to remain elevated for some time yet.
The RBA left its official cash rate on hold at 4.35% at its policy meeting. The decision was widely expected by economists.
“While recent data indicate that inflation is easing, it remains high. The board expects that it will be some time yet before inflation is sustainably in the target range,” the RBA’s policy setting board said Tuesday.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out,” it added.
The RBA’s guidance was little changed from its policy announcement in February, and will buy it time before the release of first-quarter inflation and economic growth data in coming weeks.
The threat of further interest rate increases stems from the fact that while inflation has fallen to its lowest level in two years, it remains significantly above the RBA’s 2%-3% target band at a time when there is still pressure building under wages, while the center-right Labor government will hand out income tax cuts in the middle of the year.
“The board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case,” the RBA said.
Inflation continues to be fueled by things like soaring rents and rising electricity and insurance costs, areas of the economy the RBA’s policy instrument of interest rates can only affect at the margin.
The RBA will continue to lag behind many other major central banks that are already pointing toward the probability that interest rates could fall soon.
The lag in Australia is partly due to the fact that interest rates weren’t raised by the same amount seen in other countries, as the RBA wanted to protect employment.
The RBA isn’t forecasting inflation to return to its target band until early 2026, which means inflation will have been outside of the band for close to four years.
Still, the likelihood that the RBA actually does deliver a further increase in interest rates appears low given that the economy’s growth rate is at its slowest in 30 years, while unemployment has risen quickly over recent months.
“The RBA stuck to its hawkish guns at today’s meeting but we think it will pivot towards policy easing by August this year…but the board clearly isn’t letting down their guard,” said Marcel Thieliant , head of Asia-Pacific operations at Capital Economics.
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Amazon, Google, Microsoft and Meta pour billions into artificial intelligence, undeterred by DeepSeek’s rise
Tech giants projected tens of billions of dollars in increased investment this year and sent a stark message about their plans for AI: We’re just getting started.
The four biggest spenders on the data centers that power artificial-intelligence systems all said in recent days that they would jack up investments further in 2025 after record outlays last year. Microsoft , Google and Meta Platforms have projected combined capital expenditures of at least $215 billion for their current fiscal years, an annual increase of more than 45%.
Amazon.com didn’t provide a full-year estimate but indicated on Thursday that total capex across its businesses is on course to grow to more than $100 billion, and said most of the increase will be for AI.
Their comments in recent quarterly earnings reports showed the AI arms race is still gaining momentum despite investor anxiety over the impact of China’s DeepSeek and whether these big U.S. companies will sufficiently profit from their unprecedented spending spree.
Investors have been especially shaken that DeepSeek replicated much of the capability of leading American AI systems despite spending less money and using fewer and less-powerful chips, according to its Chinese developer. Leaders of the U.S. companies were unbowed , touting advances in their own technology and arguing that lower costs will make AI more affordable and grow the demand for their cloud computing services, which AI needs to operate.
“We think virtually every application that we know of today is going to be reinvented with AI inside of it,” Amazon Chief Executive Andy Jassy said on Thursday’s earnings call.
Here is a breakdown of each company’s plans:
Amazon said a measure of its capex that includes leased equipment rose to a record of about $26 billion in the final quarter of 2024 , driven by spending in its cloud-computing division on equipment for data centers that host AI applications. Executives projected it would maintain the fourth-quarter spending volume in 2025, meaning an annual total of more than $100 billion by that measure.
The company—which gets most of its revenue from e-commerce and most of its profit from cloud computing—also projected overall sales for the current quarter that missed analysts’ expectations. Its shares slid about 4% in after-hours trading Thursday. The stock rose more than 40% in 2024 and was up nearly 9% this year before its earnings report.
Jassy said AI has the potential to propel historic change and that Amazon wants to be a leader of that progress.
“AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet,” Jassy said.
Google shares are down about 7% since its earnings report Tuesday, which showed disappointing growth in its cloud-computing business. Still, parent-company Alphabet said it is accelerating investments in AI data centers as part of a surge in capital expenditures this year to about $75 billion, from $52.5 billion in 2024. The spending will go to infrastructure both for Google’s own use and for cloud-computing clients.
“I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down,” said CEO Sundar Pichai .
AI is “as big as it comes, and that’s why you’re seeing us invest to meet that moment,” he said.
Microsoft has said it plans to spend $80 billion on AI data centers in the fiscal year ending in June, and that spending would grow further next year , albeit at a slower pace.
Chief Executive Satya Nadella said AI will become much more extensively used , which he said is good news. “As AI becomes more efficient and accessible, we will see exponentially more demand,” Nadella said.
Growth for Microsoft’s cloud-computing business in the latest quarter also disappointed investors, leaving its stock down about 6% since its earnings report last week.
Meta, too, outlined a sizable increase in its investments driven by AI, including $60 billion to $65 billion in planned capital expenditures this year, roughly 70% higher than analysts had projected. Shares in Meta are up about 5% since its earnings report last week.
CEO Mark Zuckerberg said investing vast sums will enable it to adjust the technology as AI advances.
“That’s generally an advantage that we’re now going to be able to provide a higher quality of service than others who don’t necessarily have the business model to support it on a sustainable basis,” he said.
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