Global Market | AI boom could complicate central banks’ inflation assessment, monetary policy decisions: B - The Economic Times

KUALA LUMPUR, 29 JULY 2026 —

The Bank for International Settlements (BIS) has warned that the artificial intelligence (AI) boom may complicate central banks' inflation assessment and monetary policy decisions. According to a report by the BIS, AI is simultaneously boosting demand and expanding future supply potential, making it difficult for policymakers to determine the true state of the economy. This complex environment may lead to short-term inflationary pressures, but could also have disinflationary effects in the long term if AI improves productivity and expands economic capacity.

In Malaysia, the impact of AI on the economy is still being assessed, but the country's central bank, Bank Negara Malaysia, may face similar challenges in calibrating monetary policy. Details on how the AI boom will affect Malaysia's economy are not yet available, but the country's exposure to the technology sector and its position in regional trade flows may influence the outcome. The Malaysian economy has been experiencing steady growth, and the AI boom could potentially boost economic activity, but it may also create new challenges for policymakers.

The BIS report highlights that the current wave of AI spending, supported by debt financing, is already lifting economic activity and driving gains in equity markets. However, the simultaneous impact of AI on both demand and supply could blur traditional economic signals, making it harder for central banks to accurately assess underlying conditions. Financial markets are another area of concern, with AI optimism contributing to sharp gains in technology stocks and broader equity markets, increasing the risk of asset price bubbles.

The outlook for central banks is complex, with the need to separate temporary AI-driven investment surges from sustainable productivity improvements. The BIS did not propose specific policy measures, but emphasized that central banks must be cautious in their assessment of the economy to avoid monetary policy misjudgements. As the AI boom continues to evolve, central banks, including Bank Negara Malaysia, will need to closely monitor the situation and adjust their policies accordingly to ensure economic stability and sustainable growth. Details on the specific actions to be taken by central banks are not yet available, but it is clear that the AI boom will require careful consideration and monitoring in the months ahead.