Food, not Fed: Economists prioritise India's local inflation

Most economists believe that the monetary policy would be more dependent on local factors such as food inflation than on rate changes by the US Federal Reserve.

- SHIKHA CHATURVEDI

At a panel discussion titled "Food or Fed", Aditi Nayar, chief economist at ICRA, projected that any rate cuts in India would likely be limited to 50 basis points (bps), suggesting that the Reserve Bank of India (RBI) is less likely to mirror the Fed's aggressive rate-cutting measures and instead would opt for a rate cut timeline that aligns with local economic needs.

"The timing of the rate cuts should very much be centred on what is appropriate in our own local context rather than upfronting it or frontloading it to line up with the Fed," she added.

Nayar emphasised the importance of local inflation factors like food and rent on inflation expectations.

"Food inflation dominates households' perception of inflation," she said, explaining how essentials like groceries and rent play a significant role in inflation expectations within Indian households.

Soumya Kanti Ghosh, group chief economic advisor at the State Bank of India, acknowledged the dual importance of food inflation and global interest rate trends but pointed out that India's economy has shown resilience to external disruptions.

Citing data from recent years, Ghosh argued that India's currency and interest rates have increasingly aligned with domestic fundamentals rather than reacting solely to global fluctuations.