The central bank faces a duality in the adoption of AI

The rapid adoption of artificial intelligence (AI), especially generative AI, is no longer a peripheral technological shift, but a profound macroeconomic shock.

- TULSI JAYAKUMAR

For the Reserve Bank of India (RBI), tasked with maintaining price stability while nurturing growth in a complex, developing economy, AI presents a dual challenge: it is both a potential source of disinflationary productivity and a tool for refining policy.

Tao Zhang, chief representative for Asia and the Pacific at the Bank for International Settlements (BIS), said at the Global Fintech Fest that AI is transforming not just the private financial ecosystem but how central banks operate. They must now reconcile the risks and benefits of AI, while remaining stewards of monetary and financial stability.

Al's diffusion is reshaping economies through both aggregate supply and demand. Machine learning can unlock productivity gains across sectors. In India, where the services economy is data-rich and the manufacturing base is digitising, AI can deliver a positive supply shock, boosting output and easing inflationary pressures. The BIS Annual Economic Report 2024 notes that such gains, if broad-based, can strengthen long-term growth and make inflation management easier. In principle, higher productivity can expand capacity, reduce cost-push pressures and help RBI meet its inflation target without overly tight monetary stances.