Climate Change and Central Banking in Africa

This technical report discusses the macroeconomic challenges posed by climate change to central banking, particularly in African economies. It outlines how climate-related risks, including physical and transition risks, directly impact monetary policy and financial stability. The report highlights that physical risks, such as extreme weather events, disrupt production and infrastructure, leading to inflation and output fluctuations. Transition risks, stemming from climate policies and market shifts, can also affect financial conditions and economic growth. The authors utilize simulations from the BIS-Multisector model and empirical evidence to illustrate the heterogeneous macroeconomic effects of climate shocks. The findings emphasize the need for enhanced data and modeling frameworks to better integrate climate risks into monetary policy and financial stability assessments. The report concludes by summarizing key findings and policy implications for central banks in the context of a changing risk environment.