Central banks reacting to inflation resulting from energy transition would be absurd – Natixis
Will central banks have to react to the inflation that will result from the energy transition? Economists at Natixis believe the answer is clearly no. A hike in central bank interest rates in response to this inflation would be absurd.
The energy transition will require massive additional investment
“Raising interest rates in response to inflation would reduce energy demand somewhat but would not change the fact that the cost of producing energy is higher. It is not excess energy demand that causes inflation, but the change in energy production technology.”
“The energy transition will require very significant investments, some of which have low financial returns (thermal renovation of housing, decarbonisation of industry). This will be all the easier as long-term interest rates remain low: raising interest rates in response to inflation would prevent these investments from being made.”
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FXStreet Insights Team
FXStreet
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