Let central banks stay focused on their goals

Synopsis: Urjit Patel has suggested adding climate aims to the monetary agenda, however it has multiple risks associated to it. Hence, other tools should be used for our carbon crisis.


Recently, former Reserve Bank of India (RBI) governor Urjit Patel laid out a strong argument in favour of the proposition of adding climate goals to monetary policy.

There is debate that whether central banks should join the fight and whether monetary policy be assigned a role.

Must Read: RBI must come clean where it stands on climate change
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No expertise: Former Bank of England governor Mervyn King says, it is hard enough for central banks to get their basics right, such as keeping the internal value of their currencies stable.

Central banks getting involved in running policies: Raghuram Rajan has also opposed the adoption of plainly fiscal objectives like encouraging eco-friendly investments by monetary authorities. He spoke against central banks with sufficiently wide mandates running policies best run by governments.

Complexity in data collection: complexity of green-growth calculations could result in poorer outcomes overall. It would cover policy rates of interest in a data fog that will make it harder for analysts to subject central banks to scrutiny.

What is the way forward?

First, we must not rush into mixed mandates in response to our current climate emergency. Central banks have a complex job, and any errors can prove exorbitant.

Second, climate settings are a political matter and taking up such a cause would expose central banks to the risk of lost autonomy, which is vital for long-range stability.

Source: This post is based on the article “Let central banks stay focused on their goals” published in Livemint on 13th September 2021.

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