Letters

The economy and climate crisis

New rules needed for new era

Fri Sept 02 2022 - 00:09

Sir, – Central bank interest rate and economic policy responses to the sudden rise in prices should recognise that we are not dealing with a normal business cycle inflation, but an end of carbon transition which will be very capital hungry.

The recent donning of the hairshirt by central bankers by raising interest rates contrasts sharply with their 2021 expectation that inflation was temporary. “Do nothing” was the mantra as inflation was temporary, related to Covid and related supply chain issues. It is as if they were only reacting to the numbers. Now, in the face of the Ukraine conflict and ever more expensive gas supply, the reaction also seems to be conventional. Raise rates to combat higher inflation. The policy is from the playbook from the last great inflation 50 years ago. They seem to be fighting the last war. This time, as in the 1970s, it is an energy problem, but the needs and options are different this time around. We now urgently need to reduce the cost of capital, at least to the sectors and activities focused on transition, to facilitate the massive investment required to get to net zero. – Yours, etc,

DAVID O’CONNOR,

Blackrock,

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Co Dublin.