‘Energy transition poses inflation risks’

‘Green’ move risks energy price shocks; China financial sector adds tail risk to global growth: Varma

The ongoing worldwide transition to green energy poses a significant risk of triggering energy price shocks similar to the 1970s, which would accelerate inflation, said Jayanth Varma, the sole member of the RBI’s Monetary Policy Committee (MPC) to vote against continuing with the central bank’s ‘accommodative’ policy stance.

“This means that the upside risks to long term inflation and to inflation expectations are now more aggravated,” Mr. Varma said at the last MPC meeting, the minutes of which were released on Friday.

“My second recent concern is about the tail risk to global growth posed by emerging financial sector fragility in China reminiscent of Japan of the late 1980s,” he said. “Both of these risks — one to inflation and the other to growth — are well beyond the control of the MPC, but they warrant a heightened degree of flexibility and agility,” Mr. Varma stressed.