By Philip Blenkinsop

BRUSSELS (Reuters) - The European Union and the United States are set to step up cooperation on artificial intelligence with a view to establishing minimum standards before legislation enters force, the EU's tech chief Margrethe Vestager said on Tuesday.

The European Union's AI Act could be the world's first comprehensive legislation governing the technology, with new rules on facial recognition and biometric surveillance, but EU governments and lawmakers still need to agree a common text.

Vestager, a vice-president of the European Commission, told a briefing on Tuesday that process might be completed by the end of the year.

"That would still leave one if not two years then to come into effect, which means that we need something to bridge that period of time," she said.

Vestager said AI would be one area of focus at the fourth ministerial-level meeting of the Trade and Technology Council (TTC) in Sweden on May 30-31, with discussions on generative AI algorithms that produce new text, visual or sound content, such as ChatGPT.

"There is a shared sense of urgency. In order to make the most of this technology, guard rails are needed," she said. "Can we discuss what we can expect companies to do as a minimum before legislation kicks in?"

Leaders of the G7 nations called on Saturday for the development of technical standards to keep AI "trustworthy", urging international discussions on topics such as governance, copyrights, transparency and the threat of disinformation.

Vestager, who is expected to discuss AI with Alphabet (NASDAQ:GOOGL) chief Sundar Pichai on Wednesday, noted these international talks had not yet happened. G7 leaders tasked relevant ministers to set up a G7 working group on AI by the end of the year.

"I think that we can talk about this within the TTC in a way that will help the G7 process to be as concrete as possible," she said.

By Chris Prentice

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission (SEC) on Tuesday said it obtained an order to shut down an alleged Ponzi-like scheme run by two individuals who raised nearly $62 million from investors for a sham cannabis business.

Since at least June 2019, Rolf Max Hirschmann and Patrick Earl Williams promised investors returns as high as 36% on funds they said would go toward expanding facilities for Integrated National Resources, or WeedGenics, in California and Nevada, the SEC said in a statement and court filing.

Those facilities did not exist, according to the SEC.

Hirschmann and Williams used most of the funds to pay off other investors, finance home upgrades, and buy luxury cars, jewelry and "adult entertainment," the SEC said in a complaint filed in federal court in California.

Neither Hirschmann nor Williams could be reached immediately for comment.

Williams, 34, lives in Florida and spent the money on his career as a rap musician known as "BigRigBaby," the SEC said.

Hirschmann, 52, lives in Idaho and went by "Max Bergmann" while communicating with investors, according to regulators.

"Rolf Hirschmann and Patrick Williams allegedly had no real company, no product, and no business, yet despite this, they promised investors everything and then delivered nothing," Michele Wein Layne, director of the SEC's Los Angeles regional office, said in the statement.

WeedGenics described itself as a vertically-integrated manufacturer of cannabis products on its website.

"It was all a sham," the SEC said.

Investing.com-- The Reserve Bank of New Zealand hiked interest rates as expected on Wednesday and said that rates will remain higher for longer given stubborn inflation, although local economic growth is likely to suffer as a result of monetary tightening.

The RBNZ raised its official cash rate (OCR) by 25 basis points (bps) to 5.5%, as widely expected by analysts. The move brings the OCR to its highest level since the 2008 financial crisis, after the bank hiked rates by a cumulative 525 bps since mid-2021.

While the RBNZ noted that its rate hike cycle was constraining spending and inflation pressure, it also expects interest rates to remain higher for longer to bring consumer price inflation within its 1% to 3% target range.

Annual consumer inflation was 6.7% in the first quarter of 2023, more than twice the bank’s target range. But it was also lower than an over 7% peak hit during the December quarter. 

The New Zealand dollar sank 1% after Wednesday’s decision, as the minutes of the RBNZ meeting showed that the bank had also considered a pause in future rate hikes to observe the effects of tight monetary policy on the economy.

Wednesday’s move comes after the RBNZ hiked rates by a bigger-than-expected 50 bps in April, citing overheated inflationary pressures. But the bank had then signaled a more data-driven approach to raising rates further. 

But the RBNZ also warned that economic growth was set to slow in the coming quarters, with rate-sensitive sectors already seeing a slowdown in demand and spending. 

Weak international economic conditions are expected to further stymie the New Zealand economy, especially as growth slows in the country’s biggest trading partners- Australia and China. 

Still, some facets of the economy remain resilient, the RBNZ said. Tourism has begun perking up after the lifting of anti-COVID measures last year, while rebuilding efforts in the wake of Cyclone Gabrielle, which was one of the worst storms to hit the country in over 50 years, will also stimulate growth.

New Zealand's labor market also remains tight with demand vastly outpacing supply. While the trend is expected to support economic growth in the coming months, it is also expected to reverse as monetary conditions tighten, the RBNZ said.

MEXICO CITY (Reuters) - Mexico's headline inflation likely slowed in the first half of May to its lowest level in 19 months, a Reuters poll on Tuesday showed, backing views of a sustained decline in consumer prices and that the central bank will keep its benchmark rate on hold.

The median forecast of 13 analysts sees annual headline inflation at 6.15%, the lowest since the first half of October 2021. Still, that is far above the Bank of Mexico's inflation target rate of 3%, plus or minus a percentage point.

The core index, which strips out volatile food and energy products, is forecast to have slid to 7.49% year-on-year, marking the seventh consecutive fortnight of declines.

Banxico, as the Mexican central bank is known, kept its benchmark interest rate steady at 11.25% last week in a unanimous decision, breaking a nearly two-year rate-hike cycle.

The bank forecast inflation would reach its 3% target in the fourth quarter of 2024 and suggested it would need to maintain the key interest rate at current levels for an extended period.

In the first half of May, consumer prices were forecast to have slipped 0.19% from the previous two-week period, while the core index likely rose 0.21%.

Mexico's statistics institute will release inflation data for the first half of May on Wednesday.

By Anant Chandak

BENGALURU (Reuters) - The Bank of Korea will keep interest rates unchanged for a third time on Thursday to assess the impact of previous hikes on inflation and economic growth, according to a Reuters poll of economists who were divided over the prospect of a rate cut by the end of the year.

Despite inflation running at nearly twice the central bank's 2.0% target, the BoK was expected to follow its regional peers and hold rates steady over the coming months to support a fragile economy which narrowly escaped a recession last quarter.

All 40 economists in the May 16-22 Reuters poll expected no change to the 3.50% base rate, already the highest since late 2008, at the May 25 meeting.

"Korea narrowly avoided a technical recession in the first quarter, but the GDP output gap runs negatively and we expect Korea's growth to remain below potential throughout 2023. That's why we believe no additional hikes from the BoK," said Min Joo Kang, senior economist at ING.

None of the economists who had a rate view through the end of 2023 expected the BoK to resume hiking rates. However, there was no clear consensus on whether there would be a cut this year.

While 17 of 33 respondents predicted at least a 25-basis-point cut, the remaining 16 forecast the base rate to remain at 3.50% until at least the end of 2023.

"We expect the BoK to stay on hold despite growth concerns and easing headline inflation, as core inflation is sticky at twice the inflation target. That said, the odds of a policy rate cut before the end of 2023 are rising," said Arup Raha, chief Asia economist at Oxford Economics.

South Korea's economic growth was expected to fall to 1.2% this year from 2.6% in 2022, a separate Reuters poll showed.

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan's inflation-adjusted real wages fell the most in eight years in the fiscal year 2022, government data showed on Tuesday, highlighting the pain of inflation eroding consumers' purchasing power.

The yearly data brought home the importance of accelerating wage increases to outpace stubbornly high inflation, which is not the kind of stable and sustainable inflation that the central bank wants to see, in achieving its 2% price target.

However, analysts expect real wages to rebound this fiscal year as inflation eases, while the job market remains tight and the economy is in moderate recovery, paving the way for the Bank of Japan (BOJ) to taper its monetary easing.

Still, BOJ Governor Kazuo Ueda has repeatedly maintained that the central bank would continue monetary easing for the time being to support a fragile economy while anticipating inflation to slow to less than 2% later this year.

"Risks to inflation and wages are rather skewed to the upside," said Atsushi Takeda, chief economist at Itochu Economic Research Institute. "A combination of easing inflation, tight job market and solid company profits will lay the ground for monetary policy normalisation as early as this year."

The labour ministry data also underscored the need for Prime Minister Fumio Kishida's government to stoke a virtuous cycle of inflation and wage growth.

Nominal wages rose 1.9% in the last fiscal year ending in March, the fastest increase in 31 years, but inflation at 3.8%outpaced those pay gains, resulting in real wages falling 1.8% in fiscal 2022, the data showed.

It was the biggest yearly decline since fiscal 2014, when sales tax increases stoked broader rises in prices and pushed real wages down by 2.9%.

The data suggested that wages must rise even more to outpace inflation and help boost consumers' purchasing power and private consumption that makes up more than half the economy.

Major firms have agreed to raise wages by nearly 4% this year, the fastest in three decades, in a sign cautious Japanese firms see the need of improving pay to secure skilled workers in the face of a labour crunch in the fast-ageing population.

Wages in Japan have barely grown over the past three "lost decades" since the burst of an asset-inflated bubble economy. In comparison, some other Group of Seven (G7) economies saw wages rising at a much stronger pace of about 1.4 times during the same period.

SEOUL (Reuters) - South Korea's household credit shrank at a record pace in the first quarter as high interest rates suppressed demand, central bank data showed on Tuesday.

The country's total household credit stood at 1,853.9 trillion won ($1.40 trillion) at the end of March, down 0.7% from December and down 0.5% from a year earlier, according to the Bank of Korea.

It was the biggest quarterly drop in the data series that started in the last quarter of 2002, faster than the 0.2% loss in the previous quarter and the previous record of 0.4% in the first quarter of 2009. Its annual fall was the first ever.

South Korea's central bank was on a tightening campaign for a full year through January, raising interest rates to the highest level in 14 years. It has paused since then.

($1 = 1,320.9300 won)

By Rae Wee

SINGAPORE (Reuters) - The dollar touched a six-month high against the yen on Tuesday as expectations grew that U.S. rates will remain higher for longer and as the debt ceiling impasse kept risk sentiment fragile.

Among a slew of Federal Reserve heavyweights who spoke on Monday, some hinted that the central bank still has more to go in tightening monetary policy.

Minneapolis Fed President Neel Kashkari said that U.S. rates may have to go "north of 6%" in order for inflation to return to the Fed's 2% target, while St. Louis Fed President James Bullard said that the central bank may still need to raise another half-point this year.

Against the Japanese yen, the greenback rose to a near six-month peak of 138.80 in early Asia trade, a reflection of the stark contrast between a still-hawkish Fed and an ultra-dovish Bank of Japan.

"Markets are pricing for higher rates for longer by the Fed," said Tina Teng, market analyst at CMC Markets. "U.S. inflation is still way above the target ... and near-term, the economy is running resilient.

"I don't think the Fed will just start cutting rates anytime soon."

Money markets are pricing in a roughly 26% chance that the Fed will deliver another 25-basis-point rate hike next month, compared to a 20% chance a week ago, according to the CME FedWatch tool.

Expectations of interest rate cuts later this year have also been scaled back, with rates seen holding at around 4.7% by December.

Similarly, the greenback kept the offshore yuan pinned near its recent five-month low and it last bought 7.0547.

China on Monday kept its benchmark lending rates unchanged, as a weakening yuan and widening yield differentials with the United States limited the scope for any substantial monetary easing to shore up the country's post-COVID economic recovery.

The euro slipped 0.05% to $1.0808 and is down nearly 2% for the month thus far against a stronger dollar, reversing two straight months of gains.

Sterling edged 0.02% higher to $1.2440.

'X-DATE' LOOMS

Also on investors' minds were concerns over a looming debt ceiling deadline in the United States, which put a lid on risk sentiment and supported the safe-haven U.S. dollar.

President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the U.S. government's $31.4 trillion debt ceiling and will keep talking with just 10 days before a possible default.

"The debt ceiling drama has reached a fever pitch in recent weeks," said economists at Wells Fargo (NYSE:WFC). "The policy disagreements among lawmakers appear wide as we enter crunch time."

Short-end U.S. Treasury yields have jumped, reflecting market jitters, with the yield on the one-month Treasury bill last up more than 10 bps at 5.7921%. Yields rise when bond prices fall.

The two-month Treasury bill yield last stood at 5.3246%, having touched a high of 5.4330% in the previous session. [US/]

Against a basket of currencies, the U.S. dollar steadied at 103.27, not far from a roughly two-month high hit last week.

The Aussie rose 0.05% to $0.6656, while the kiwi gained 0.07% to $0.6290.

MEXICO CITY (Reuters) - The Dominican Republic's economy is expected to grow around 4% in 2023, the IMF said on Monday, slowing from the 4.9% rise in 2022.

The economy is "one of the most dynamic and resilient in the Western Hemisphere over the last two decades," the IMF said in a statement, crediting the island nation's "sound" post-pandemic reforms.

"The strong recovery began moderating at the end of 2022 in response to tighter global financial conditions, lower global demand, and the appropriate withdrawal of policy stimulus, contributing to inflation's convergence to its target," the IMF said following a visit to the Dominican Republic.

The fund said the economic outlook for the Dominican Republic is positive, though subject to high uncertainty.

By Martin Coulter and Supantha Mukherjee

LONDON/STOCKHOLM (Reuters) - As the race to develop more powerful artificial intelligence services like ChatGPT accelerates, some regulators are relying on old laws to control a technology that could upend the way societies and businesses operate.

The European Union is at the forefront of drafting new AI rules that could set the global benchmark to address privacy and safety concerns that have arisen with the rapid advances in the generative AI technology behind OpenAI's ChatGPT.

But it will take several years for the legislation to be enforced.

"In absence of regulations, the only thing governments can do is to apply existing rules," said Massimiliano Cimnaghi, a European data governance expert at consultancy BIP.

"If it's about protecting personal data, they apply data protection laws, if it's a threat to safety of people, there are regulations that have not been specifically defined for AI, but they are still applicable."

In April, Europe's national privacy watchdogs set up a task force to address issues with ChatGPT after Italian regulator Garante had the service taken offline, accusing OpenAI of violating the EU's GDPR, a wide-ranging privacy regime enacted in 2018.

ChatGPT was reinstated after the U.S. company agreed to install age verification features and let European users block their information from being used to train the AI model.

The agency will begin examining other generative AI tools more broadly, a source close to Garante told Reuters. Data protection authorities in France and Spain also launched in April probes into OpenAI's compliance with privacy laws.

BRING IN THE EXPERTS

Generative AI models have become well known for making mistakes, or "hallucinations", spewing up misinformation with uncanny certainty.

Such errors could have serious consequences. If a bank or government department used AI to speed up decision-making, individuals could be unfairly rejected for loans or benefit payments. Big tech companies including Alphabet (NASDAQ:GOOGL)'s Google and Microsoft Corp (NASDAQ:MSFT) had stopped using AI products deemed ethically dicey, like financial products.

Regulators aim to apply existing rules covering everything from copyright and data privacy to two key issues: the data fed into models and the content they produce, according to six regulators and experts in the United States and Europe.

Agencies in the two regions are being encouraged to "interpret and reinterpret their mandates," said Suresh Venkatasubramanian, a former technology advisor to the White House. He cited the U.S. Federal Trade Commission's (FTC) investigation of algorithms for discriminatory practices under existing regulatory powers.

In the EU, proposals for the bloc's AI Act will force companies like OpenAI to disclose any copyrighted material - such as books or photographs - used to train their models, leaving them vulnerable to legal challenges.

Proving copyright infringement will not be straightforward though, according to Sergey Lagodinsky, one of several politicians involved in drafting the EU proposals.

"It's like reading hundreds of novels before you write your own," he said. "If you actually copy something and publish it, that's one thing. But if you're not directly plagiarizing someone else's material, it doesn't matter what you trained yourself on.

'THINKING CREATIVELY'

French data regulator CNIL has started "thinking creatively" about how existing laws might apply to AI, according to Bertrand Pailhes, its technology lead.

For example, in France discrimination claims are usually handled by the Defenseur des Droits (Defender of Rights). However, its lack of expertise in AI bias has prompted CNIL to take a lead on the issue, he said.

"We are looking at the full range of effects, although our focus remains on data protection and privacy," he told Reuters.

The organisation is considering using a provision of GDPR which protects individuals from automated decision-making.

"At this stage, I can't say if it's enough, legally," Pailhes said. "It will take some time to build an opinion, and there is a risk that different regulators will take different views."

In Britain, the Financial Conduct Authority is one of several state regulators that has been tasked with drawing up new guidelines covering AI. It is consulting with the Alan Turing Institute in London, alongside other legal and academic institutions, to improve its understanding of the technology, a spokesperson told Reuters.

While regulators adapt to the pace of technological advances, some industry insiders have called for greater engagement with corporate leaders.

Harry Borovick, general counsel at Luminance, a startup which uses AI to process legal documents, told Reuters that dialogue between regulators and companies had been "limited" so far.

"This doesn’t bode particularly well in terms of the future," he said. "Regulators seem either slow or unwilling to implement the approaches which would enable the right balance between consumer protection and business growth."

(This story has been refiled to fix a spelling to Massimiliano, not Massimilano, in paragraph 4)