RBA's Bullock says climate change increases economic uncertainty

The news: Incoming Reserve Bank Governor Michelle Bullock has warned that climate change is raising uncertainty for Australia’s economy and complicating the central bank’s job.

The numbers: The Intergenerational Report released last week predicted higher temperatures could reduce Australia’s economic output over the next four decades by up to $423 billion.

The context: The deputy governor, who will replace Philip Lowe as the RBA boss in mid-September, said hotter temperatures and more extreme weather will disrupt businesses, damage property and lower productivity growth. Significant climate risks could also make businesses less willing to invest, putting downward pressure on rates and limiting the effective monetary policy space available to policymakers. However, additional spending due to more frequent natural disasters could put upward pressure on the neutral rates.

What they said: “Navigating uncertainty is an inherent part of the work of a central bank. But the uncertainty around climate change is particularly acute,” Ms Bullock said in a speech at the Australian National University on Tuesday.