Climate change is emerging as a huge challenge for central banking landscape in 21st century says RBI governor

Shaktikanta Das, Governor, Reserve Bank of India noted in a speech that climate change is emerging as a huge challenge for central banking landscape in the 21st century. It can become a systemic risk, if not addressed in time. Severe climate or weather related events which are becoming more frequent and intense can impact central banks core mandates of price and financial stability by causing sudden price pressures, damage to infrastructure, loss of economic activity and stress on fiscal balances. They can also impact the balance sheet of banks and other lenders. In recent years, there has been a growing role of regulatory policies in the climate policy toolkit. More work needs to be done in this front while recognising that central banks can supplement the efforts of governments and other authorities who will be at the forefront of climate related initiatives. He also highlighted continuing geopolitical disturbances and geoeconomic fragmentations that pose daunting challenges to the central banks. Experience of the past few years shows that the journey ahead may be marked by dynamic shifts in geopolitics, with frequent incidences of supply chain disruptions and greater barriers in trade, technology and capital flows. These will be the new sources of shocks, often not well captured in existing macroeconomic models.

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