MUMBAI (Reuters) – Climate change and digital advancements may complicate central banks’ inflation-targeting policies, according to Michael Patra, deputy governor of the Reserve Bank of India.
He mentioned that climate change could disrupt supplies, leading to food and energy shortages, which poses a serious threat to inflation stability.
Central banks generally set inflation targets to maintain economic stability; for the RBI, the target is 4% with a 2% margin. India’s retail inflation rose to 5.49% in September, mainly due to food prices.
Patra noted that natural disasters could deplete wealth, affecting spending, and that currency depreciation from climate impacts might lead to financial instability.
While central banks can address climate issues, integrating these challenges into their inflation strategies is difficult, he said. Digitalization might also shift lending from banks to less regulated entities, affecting monetary policy.
Additionally, the RBI is developing a data analytics system to enhance its regulatory functions, as stated by Deputy Governor Swaminathan J.
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