Analysts optimistic on BoT’s AI adoption amid security concerns

DIGITAL technology analysts are expressing optimism about the Bank of Tanzania’s (BoT) move to harness Artificial Intelligence (AI) for managing inflation across Africa.

DAR ES SALAAM: DIGITAL technology analysts are expressing optimism about the Bank of Tanzania’s (BoT) move to harness Artificial Intelligence (AI) for managing inflation across Africa.

While this strategic move has the potential to significantly enhance economic stability and improve efficiency in financial operations, analysts are also voicing concerns about security.

They noted that integration of AI in central banks’ operations can improve their capacity to forecast economic trends and risks in bid of taking timely decision to control inflation despite the fact it can lessen the financial institutions’ ability to control their privacy.

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Their comments come in the wake of the 46th Annual Meeting of the Association of African Central Banks (AACB) which was held recently in Mauritius which brought together central bank governors from across Africa including the BoT Governor Mr Emmanuel Tutuba.

The meeting engaged in pivotal discussions on the incorporation of AI and big data analytics into monetary policy. This gathering underscored the potential for AI and big data to transform how African central banks combat inflation, forecast economic trends and guide monetary decisions.

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Reacting on the continent’s central bank governors, Lecturer at the Dar es Salaam Institute of Technology’s (DIT) Department of Computer Studies, Dr Joseph Nyansiro said the decision of central banks to leverage data science AI for enhancing monetary policy decision-making is a commendable step towards more efficient economic management.

“By integrating these advanced technologies into their operations, central banks can significantly improve their ability to forecast economic trends, assess risks and make datadriven timely decisions to control inflation and stabilise exchange rates,” Dr Nyansiro told the Business Standard over the weekend.

However, he said in many developing countries, a significant portion of economic activity occurs in the informal sector where data collection is particularly challenging, the situation which limits the availability of comprehensive datasets.

Dr Nyansiro said presence of comprehensive data which are currently missing would enable the central banks in the continent to build accurate predictive models that can inform policy decisions. In that regard, he said in order to fully harness the power of AI and data science, central banks must foster close collaboration with government agencies, private sector organisations and other stakeholders.

Dr Nyansiro said the collaboration among them will smooth access to diverse and reliable data sources which can ultimately contribute to the development of robust models that can more effectively guide economic decisions and respond to changing economic conditions. International Securities, Research and Analytics Manager, Mr Beatus Mlingi said the initiative underscored the potential for AI and big data to transform how African central banks combat inflation, forecast economic trends and guide monetary decisions.

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“With the global financial environment becoming increasingly complex, this shift towards technology-driven policymaking is a crucial development with significant implications for investors, policymakers and capital markets,” Mr Mlingi said.

According to Mr Mlingi, the theme of the AACB meeting, “Use of Big Data Analytics Technology, Central Bank Interest Rates and Artificial Intelligence in Combating Inflation,” highlights the transformative potential of AI and big data in improving the efficiency and precision of monetary policy.

These technologies enable central banks to process vast amounts of data from various sources, allowing for deeper insights into economic patterns, trends and forecasts.

“For monetary policy, this means more accurate inflation forecasting, better analysis of economic growth trajectories and more informed decisions regarding central bank rates. “From an investment advisor’s perspective, the adoption of AI and big data analytics by African central banks could bring about more informed and timely policy decisions,” he said.

This, in turn, impacts interest rates, inflation projections and overall financial stability, which are critical factors in guiding investment strategies. For capital markets, more precise monetary policies would reduce uncertainty, providing clearer signals to investors regarding market conditions, risk levels and potential opportunities.

The use of AI and big data analytics goes beyond inflation forecasting. It extends to broader aspects of monetary policy, including the management of central bank interest rates and ensuring financial stability.

For investors, this uneven pace of AI adoption presents both opportunities and risks. Countries that successfully integrate AI into their monetary policies may offer more stable and predictable markets, making them more attractive investment destinations.

On the other hand, countries that lag in adopting these technologies may continue to experience higher volatility, making investments riskier.

An economist-cum-investment banker, Dr Hildebrand Shayo, stated that AI is making incredible strides worldwide. Many establishments, governments and organisations are racing to transition from analytical AI models designed for specific tasks to generative AI models, which can produce content that resembles human output.

With all these endeavours, based on my study of economist Robert Solow’s economic observations on productivity matters, many of us are still in the early phases of integrating AI to realise its full potential.

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“Banks can more effectively plan capital and liquidity and perform risk assessments using AI,” Dr Shayo said warning that: “Widespread AI could increase the risk of herd behaviour, market correlation, deception, manipulation and conflicts of interest”.

Additionally, he said, using AI should be done cautiously as it will likely produce new winners and losers in the labour and capital markets, which could impact the distribution of wealth and income.

“The impact of AI on central banks, along with how bank governors perceive the advancements in big data analytics, remains a topic of ongoing debate. These advancements have the potential to revolutionise the monitoring of various economic indicators and facilitate timely and accurate policy decisions,” Dr Shayo said.