Central Banks Must Confront Climate Change Impact on Monetary Policy

European Central Bank Governing Council member Olaf Sleijpen has emphasized the need for central banks to consider the impact of climate change on monetary policy. In a statement, he noted that 'increasing shocks to the economy from extreme weather' must be factored into decision-making processes.

Sleijpen pointed out that climate change is causing 'large-scale structural changes to the economy,' which in turn affects 'monetary policy transmission, equilibrium real interest rates, and added complexity in communication.'

He argued that central bankers need to take these factors into account to effectively manage their policies. This includes considering how climate-related disruptions might impact the economy and inflation.