RBA Sounds Alarm on Global AI Risks, Geopolitical Threats

The Reserve Bank of Australia (RBA) has sounded an alarm about external threats to the country's financial system, warning that a sudden reversal in global artificial intelligence investment could trigger a disorderly asset price correction.

The central bank's semi-annual financial stability review released Thursday highlighted the increasing risks emanating from abroad, citing unresolved conflicts in the Middle East and Ukraine as well as intensifying strategic competition among major powers.

The RBA noted that the AI boom is fueled by expectations of rapid earnings growth and a debt-financing cycle that is becoming more opaque and circular. A shift in sentiment towards these investments could trigger 'disorderly asset price corrections' across global markets, with Australia unlikely to be immune from such a shock.

The bank also flagged the growing cyber threat landscape, noting that the increasing use of AI within Australia heightens the risk of attacks on critical institutions. The RBA warned that opportunistic cyber-attacks could occur at a moment of generalised financial stress, making potential crises harder to manage.