RBA’s Hunter warns AI could trigger sharp asset repricing as boom adds to inflation

Hunter’s description of AI as a near-term inflationary force supports the RBA’s tightening bias rather than pointing to relief. That underpins the Australian dollar on rate differentials and…

Hunter’s description of AI as a near-term inflationary force supports the RBA’s tightening bias rather than pointing to relief. That underpins the Australian dollar on rate differentials and keeps the focus on the risk of further hikes. Her financial stability warning adds a central bank voice to growing market unease over AI valuations and funding, at a time when tech-linked assets are already under strain. Any further move toward repricing would favour defensive positioning in AI-exposed equities.

It could also limit the Australian dollar’s upside if global risk sentiment sours. --- Last week: investingLive Asia-Pacific market news: RBA hikes to 18-year high The RBA sees AI as an inflation problem today and a potential financial stability problem tomorrow, with little sign yet of the productivity payoff that would justify the investment boom. Summary: RBA Assistant Governor Sarah Hunter said AI may be increasing risks to financial stability.

Some asset prices could face sharp repricing, or disorderly adjustments, if returns on AI investment disappoint. There is limited evidence AI has materially lifted aggregate productivity or had large effects on employment in advanced economies. In the near term, AI-driven demand against constrained supply adds upward pressure on inflation. The long-run effect is likely broadly neutral. There are tentative signs of labour market adjustment in AI-exposed occupations, particularly for younger workers.

The data centre boom is one reason the RBA has hiked five times this year, to 4.85%. Reserve Bank of Australia Assistant Governor Sarah Hunter has warned that artificial intelligence could pose growing risks to financial stability. She said some asset prices would be exposed to sharp repricing, or even disorderly adjustments, if returns on AI investment fall short of expectations.

Speaking at a UBS conference in Sydney on Monday, Hunter said there was limited evidence so far that AI had materially lifted aggregate productivity, and little sign it had caused large effects on employment across advanced economies, according to Reuters. On inflation, her view was that AI’s impact would change over time. In the near term, she said, the technology acts as a positive shock to demand at a time when the economy’s supply capacity is constrained, which adds upward pressure on prices.