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 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. Over the longer run, she expects supply to catch up as data centre capacity and related industries expand, easing bottlenecks. If AI then delivers broader productivity gains, the initial inflationary pressure from the investment boom is likely to fade, leaving the long-run effect broadly neutral.The comments carry weight for the policy outlook. A surge in domestic data centre investment has been one of the forces adding to demand in the Australian economy. It is among the reasons the RBA has raised its cash rate five times this year, taking it to an 18-year high of 4.85%. Hunter’s description of AI as a near-term inflationary force fits with that tightening rather than pointing to any early relief.Hunter also noted tentative signs of adjustment in the labour market. Job advertisements and employment outcomes have been weaker in occupations more exposed to AI, while growth has been stronger in areas where the technology has had less impact, particularly for younger workers.Her financial stability warning lands at a sensitive moment for global markets, with investors already scrutinising the scale of AI spending and the debt and long-term commitments being taken on to fund it. Hunter stopped short of predicting a correction, framing the risk as conditional on investment returns disappointing.For traders, the takeaway is a central bank that sees AI adding to inflation now while keeping an eye on the risk of a sharp reversal in the asset prices tied to it.  This article was written by Eamonn Sheridan at investinglive.com.