Why targeted central bank instruments that incentivise strategic investments are crucial in this age
THE ongoing disruption of wide-ranging commodities following the closure of the Strait of Hormuz is the latest in a series of supply-side shocks arriving with growing frequency and intensity.
When such a shock hits, monetary tightening raises the cost of borrowing for exactly those long-horizon, capital-intensive projects that would reduce exposure to the next one.
The higher capital intensity of renewable energy projects, for example, makes them more sensitive to the cost of credit than fossil-based alternatives. Such “resilience projects” become the most expensive to finance precisely when they are needed most.
