Reserve Bank deputy governor Michele Bullock, who will take over the institution next month, has warned climate change will affect monetary policy.
Climate change will affect the way the Reserve Bank sets interest rates and the stability of the entire financial system, with incoming bank governor Michele Bullock warning it will affect property values, the way we work and the location of our communities.
“This is because climate change might have important effects on an economy’s capacity to produce goods and services – that is, on potential output,” she said. Bullock said climate change could lead to upward pressure on inflation, which would then force the Reserve Bank to look at how it used interest rates to control price pressures.
Bullock said in a world where climate change-related risks affected the economy, households may be more likely to save money and businesses less inclined to invest in new operations or productivity-enhancing technology. “This could result in unexpected credit losses for banks, increased claims on insurers and write-downs to the value of financial investments. If not adequately managed, there could be implications for the stability of the financial system.”She said while there were economic risks posed by adapting to climate change, such as the huge increase in spending on renewable energy sources, there may also be opportunities.
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