Online Reporter
South Africa’s central bank urgently needs to adopt a more flexible monetary-policy framework that incorporates climate-risk considerations, new research shows.
“Traditional monetary policy tools might be insufficient or less effective if climate risks are not integrated into the decision-making process,” authors Admire Chirume, James Hurungo and Brandon Chinoperekweyi, wrote in a study published by the South African Reserve Bank on Thursday.
Scenario tests they conducted over a 50-year horizon showed droughts, floods, changing rainfall patterns, supply disruptions in key sectors such as agriculture, and other shocks translated into steeper production costs — which led to higher interest rates.
The central bank has set a 3 percent to 6 percent inflation target, although policymakers said last month that they intend to aim for the lower end of the band.
Extreme weather events such as severe drought and flooding have become increasingly commonplace in South Africa and led to significant damage, underscoring the urgency for the government to respond.
Besides driving up prices, climate-induced shocks significantly influence inflation expectations, weigh on economic growth and elevate unemployment in a country with one of the highest jobless rates in the world at 33,2 percent, the study found. It also noted that investment tended to decline during periods of climate stress and exchange-rate volatility was exacerbated.
“The central bank should develop climate-informed interest-rate policies that proactively address expected and unexpected climate shocks,” the authors wrote. — Bloomberg
