New Delhi, July 20 -- As India becomes increasingly vulnerable to climate change, its implications for inflation can no longer be ignored. Climate risk is now inflation risk too, requiring monetary policy frameworks to evolve and reflect this reality.

The Reserve Bank of India's (RBI) Monetary Policy Report of April 2024 estimated that climate-induced shocks could add up to 100 basis points to headline inflation by 2050.

While India's flexible inflation targeting (FIT) framework has a CPI inflation target of 4%, with a margin of 2% on either side, its primary tool-the repo rate-is effective against demand-driven inflation. So, we must evaluate how this band would change if climate shocks are incorporated.

This is especially important b...