Tshazibana: green dual interest rates are ‘non-starters’ for African central banks

Monetary bank policies like green dual interest rates are not the solution to promoting climate-related financing but that doesn’t mean central banks should be bystanders, says Fundi Tshazibana, deputy governor of the South African Reserve Bank.

Speaking at the University of London, Tshazibana noted that proposals for a green interest rate or introducing a green quantitative easing or QE are “non-starters” as it would increase inflation over time and discredit central banks.

“Central bank credibility has been hard won and remains potentially fragile, even in my country where inflation targeting has been successful. In many other African countries, this fragility is even more pronounced,” she said.

“Compromising it by adding climate objectives to those of interest rate policy would effectively mean abandoning the main tool that African central banks have to fight inflation”.

Tshazibana, who also serves as the vice-chair of the Network for Greening the Financial System, largely focused on the issues facing South Africa and other African nations, as she noted that climate-related risks were country-specific and there can’t be a “copy-and-paste approach”.

“Financial policies for climate resilience in Africa will fail if they simply copy models from advanced economies,” she said.

African nations as a whole only contribute about 4% of global emissions, yet many are among the hardest hit from climate change. Over 11 million people have been impacted by abnormal rainfall in 2024, while a drought in Southern Africa left 27 million people with food insecurity.

Meanwhile, the average cost of capital for energy projects in African nations is 15.6%, but only around 5% for Western Europe and the US, Tshazibana said.

“With limited fiscal space, public finance alone cannot shoulder the climate financing burden. In this context, calls for central banks to promote climate-related financing are justified”.

But instead of policies like green interest rates, central banks can work through other areas like developing capital markets, addressing insurance gaps, and increasing the overall resilience of the financial sector through bank disclosures and risk management. However, Tshazibana added that disclosure policies must address the nuances that face African countries and suggested that voluntary disclosures are needed before they can become mandatory.

Tshazibana also noted that one of the biggest determinants of stability in African nations is fiscal sustainability, which means trying to avoid debt. There are seven African countries that the International Monetary Fund (IMF) says are in debt distress.

“If we want more developed capital markets in Africa, we need to improve fiscal policymaking. We also need faster debt restructuring processes that enable countries to rebuild their finances and their economies quickly if a debt crisis occurs. Despite significant progress being made over the past couple of years, the restructuring process remains slow.”

Some African leaders have been asking for debt relief, as the IMF and World Bank have been slow to respond to calls to restructure global south debt.

Tshazibana said central banks “are not flying blind” and are aware of what they don’t know and of the dangers of mission creep, but safeguarding against inflation is the key focus of any central bank.

“At the same time, our active roles in promoting financial stability and fostering market development present meaningful opportunities for positive impact. It is in these areas – where our expertise is strongest – that we should concentrate our efforts.”

Editor’s note: Updated on 14 November, 2025 to clarify that QE would increase, not lower, inflation. 

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