AI Investment Boom Supports Global Markets, But Slowdown Could Trigger Sharp Correction: RBI Governor

NEW DELHI: The artificial intelligence (AI) investment cycle has emerged as a key support for global financial markets, but any slowdown in AI-related investments or earnings could trigger a sharp repricing of financial assets, particularly across the AI value chain, RBI Governor Sanjay Malhotra said on Friday.

Addressing the Kautilya Economic Conclave, Malhotra said the AI investment cycle had become a “major support for global markets”, while warning that moderation in investments or earnings could lead to a correction in valuations.

He said a correction in AI-related valuations in advanced economies could, however, have a positive spillover for emerging markets such as India by boosting capital inflows.

Malhotra also flagged rising global bond yields as a key concern, citing increasing public debt amid higher government consumption and growing AI investments. He said rising international interest rates could also have implications for real interest rates in India.

The RBI governor listed stretched AI valuations, elevated global debt, leverage in non-bank finance, private credit and cyber threats among the five major risks to global financial stability.

He also warned that rapid AI adoption and growing cybersecurity risks could pose challenges to the financial system. Malhotra said the RBI had taken several measures to address risks arising from AI and cybersecurity, without detailing them.