Reserve Bank governor Philip Lowe won't enter the debate about what Australia should do to tackle climate change, but says the central bank is trying to grapple with its implications on the economy.
He says according to the Bureau of Meteorology, Australia recorded the hottest temperatures on record last year, and has suffered though a terrible drought and devastating bushfires.
"At the moment the weather is having a material effect on our economy," Dr Lowe told the House of Representatives economics committee on Friday.
He said the climate is changing patterns of production and investment in the economy, along with the cost of insurance and the impact on asset values.
"The effects are significant and we are trying to understand them," the governor said.
But committee member and Liberal MP Craig Kelly said Australia has always suffered bushfires, cyclones and drought.
"Hasn't that always been the case that we have had these significant climatic disasters throughout our history and we have overcome them every single time?" he asked.
Dr Lowe agreed, but said the judgment of most people is that with temperatures being high and more variable, there is going to be more volatility.
"How quickly that will play out, we don't know," he said.
"But with higher temperatures and more variable conditions the patterns we have always seen are going to be amplified probably and we need to prepare for that."
He said the drought has subtracted 0.25 percentage points from economic growth in each of the past two years and the central bank is expecting the same detraction this year, "a significant hit to GDP".
The Reserve Bank is also expecting the bushfires to have reduced growth by 0.2 percentage points over the December and March quarters, although this will be offset by the rebuilding effort over the rest of the year.
Separately, the spread of the coronavirus is expected to wipe out a further 0.2 percentage points from growth in the March quarter.
Australian Associated Press