Climate change a growing concern for monetary policy: RBI

The Reserve Bank of India (RBI) has highlighted the challenges posed by climate change to monetary policy and economic growth, the central bank said in its latest Monetary Policy Report.

According to the report, the escalating frequency of extreme weather events (EWE) due to global warming presents a hurdle for monetary policymakers. The increasing occurrence and severity of weather shocks directly impact inflation by disrupting agricultural production and global supply chains. Additionally, climate change has the potential to alter the natural rate of interest and weaken the transmission of monetary policy measures to households and businesses.

Recognising these risks, central banks worldwide are increasingly integrating climate-related factors into their analytical frameworks. Without adequate climate mitigation measures, the RBI warns that long-term economic output could decline by up to 9 per cent by 2050 compared to a scenario with no climate change, resulting in lower productivity and a potentially reduced natural rate of interest.

Furthermore, the report highlights the adverse impact of frequent weather-related disruptions on the economy's growth trajectory, posing downside risks to economic stability.

(With PTI inputs)