DAR ES SALAAM: Bank of Tanzania (BoT) joins other central banks in Africa to discuss leveraging artificial intelligence and big data analytics to combat inflation and enhance monetary policy.
During the 46th annual meeting of the Association of African Central Banks (AACB) held in Mauritius, BoT Governor Emmanuel Tutuba emphasised the critical role that big data and artificial intelligence (AI) can play in monetary policy decision-making.
“Big data analytics and artificial intelligence are particularly suitable where the monetary policy framework relies on the central bank rate, due to their capability to forecast inflation effectively,” Mr Tutuba said at AACB meeting held early this month.
The AGM theme focused on the use of these technologies to address inflation, the discussions highlighted their potential to forecast economic indicators accurately.
While discussing the benefits and challenges of using these technologies, Governor Tutuba cautioned central banks to approach them with care.
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“We must use these technologies carefully to avoid potential harms associated with the accuracy of the relevant data,” BoT governor said.
One-way artificial intelligence can assist central banks is by enhancing their IT and data science capabilities.
An economist-cum-investment banker, Dr Hildebrand Shayo told ‘Daily New’ yesterday that AI systems can monitor all relevant indicators in real-time, providing regulators with up-to-date insights to support decision-making.
“Additionally,” Dr Shayo said “it can assist central banks in identifying threats to financial stability, locating specific microeconomic and non-economic data to support policy decisions.
“Also, utilising synthetic data produced by artificial intelligence, and automating processes associated with central banking operations”.
However, the economist said there are several risks are associated with using AI in central banking.
“The risks include threats to data privacy, the potential for false positives from synthetic data, a high risk of embedded bias, challenges in explaining AI-based policy decisions, and cybersecurity risks that could jeopardise national security.
“My message to the governors of the central bank is straightforward: Will the Solow paradox resurface in the context of AI?” he said.
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The Solow Paradox, named after economist Robert Solow, refers to the observation that, despite significant investments in information technology (IT) and the rapid growth of the tech sector, there has been a lack of corresponding increases in productivity at the macroeconomic level.
Nevertheless, the AACB meeting also addressed concerns about the high costs associated with implementing necessary systems for effective analysis and the challenges posed by the presence of multiple data sources, including unofficial ones.
Despite these challenges, the central bank governors expressed a collective agreement on the necessity of adopting emerging technologies.
Additionally, the discussions underscored the numerous benefits AI and big data analytics offer in improving the accuracy of inflation forecasts, enabling timely and informed policy decisions.
The Mauritius’ Prime Minister, Mr Pravind Kumar Jugnauth, reinforced this sentiment, urging central banks to collaborate and adapt to the evolving technological landscape to ensure their institutions operate efficiently.
Several central banks around the world are exploring or implementing AI in various capacities namely Bank of England, European Central Bank, Bank of Canada, People’s Bank of China, Bank of Israe and Reserve Bank of Australia.
Also, in Africa, several central banks are exploring or implementing AI to enhance their operations and decision-making processes including BoT, South African Reserve Bank, Central Bank of Nigeria, Bank of Ghana and Kenya’s Central Bank.
