AI Asset Valuations Pose Risk, but Cyber Threats are Bigger Concern: RBI Governor
RBI Governor Sanjay Malhotra warns that while AI asset valuations pose global risks, cyber threats remain the primary concern for central banks.
Reserve Bank of India (RBI) Governor Sanjay Malhotra has highlighted a dual-edged sword in the rise of artificial intelligence, noting that while inflated valuations of AI-related assets could destabilize the global economy, the growing cyber threats linked to AI technology represent a more pressing concern for central banks.
Global Economic Risks and AI Bubbles
Speaking during a post-policy press conference on Wednesday, Governor Malhotra addressed the potential for an AI-driven asset bubble. He noted that the global economic outlook faces several significant downside risks, including:
- Elevated AI-related asset valuations: The rapid surge in the value of companies tied to AI technology.
- Geopolitical Tensions: The ongoing conflict in West Asia remains unresolved, adding uncertainty to markets.
- Financial Tightening: The continued tightening of global financial conditions.
- Public Debt: High levels of public debt across various economies.
When questioned about whether the RBI's primary worry was an asset bubble, labor market disruption, or global financial stability, the Governor clarified that all these factors are "material" risks to the system.
The Growing Dimension of Cyber Risk
Despite the economic weight of asset valuations, Malhotra identified cyber security as the most critical challenge for central bankers in the modern era. He explained that the integration of information technology across all financial systems has created a highly interconnected landscape where risks can spread rapidly.
"Already in this day and age, when IT is being used by all systems and when there are no borders between the financial systems and they interact with each other, AI adds another dimension to it," the Governor stated.
To combat these emerging threats, the RBI is actively employing its regulatory and supervisory functions to fortify the financial system. The central bank is working to strengthen its systems to mitigate and prevent cyber risks before they can manifest into systemic crises.
Oil Price Assumptions Revised Upward
In a related development regarding global economic indicators, the RBI has adjusted its oil price assumptions. Due to the re-escalation of conflict in West Asia and persistent high crude prices, the central bank has raised its annual average oil price assumption by USD 5 per barrel.
The new assumption stands at USD 95 per barrel. Deputy Governor Poonam Gupta explained that this revision reflects the current market expectations and the evolving geopolitical situation, noting that forward markets suggest prices will remain higher than those seen in previous policy reviews.