Monetary policy is an adjustment of the supply of money in the economy by the Reserve Bank of India(RBI) to achieve a combination of inflation and output stabilization.
Climate change effects on monetary policy
- Directly impacts inflation through adverse weather events affecting agricultural production and global supply chains.
- Impact the Natural Rate of Interest (NRI) due to increasing temperatures and occurrence of Extreme weather events undermining productivity and lowering potential output.
- NRI is a real short-term interest rate consistent with output at its potential and a stable rate of inflation.
- It is one element which helps to define the monetary policy stance (accommodative, neutral or restrictive).
- NRI is a real short-term interest rate consistent with output at its potential and a stable rate of inflation.
- Impact the financial health of banks and other financial institutions, the value of assets, and the economic expectations of individuals and businesses.
Way forward
- Adopting green taxonomy, which is a framework to assess the sustainability credentials and possible ranking of economic activity.
- Need to incorporate climate risk into their modeling frameworks used for monetary framework.
Steps Taken for Transition to Green Economy
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