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Climate Change: Implications for Monetary Policy
Central banks can design their monetary policy to push for low interest rates for low-carbon technologies. Further, monetary policy can also direct credit to green investments by tilting the playing field with differential pricing for borrowers supported by green collaterals. As sovereign green bonds have already been introduced, the RBI can incentivise banks to hold more sovereign green bonds in their sovereign bond portfolio. Commercial banks holding more sovereign green bonds can be incentivised - the RBI can pay them higher interest rates in open market operations. […]