Food or Fed: What will RBI choose in October?

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Subscribe to enjoy similar stories. MUMBAI : Food or Fed: That will be the question facing India’s monetary policy committee (MPC) in October.

On one hand, elevated food inflation—and its associated risks—have kept the rate-setting panel on alert mode; on the other, the US Federal Reserve has started an era of monetary policy easing with an outsized cut of 50 basis points (bps) last week (and indicated more cuts adding up to 150bps by the end of 2025). After higher interest rates for over a year, this Fed cut marked the first reduction since the pandemic in 2020, as weak labour market conditions, possible risks of a recession and easing inflation called for policy easing.

However, the size of the cut surprised the world: The Fed has delivered half-a-percentage-point cuts mostly in times of crisis, such as the covid outbreak, the 2007 global financial crisis, and the 2001 dot-com bust. Traditionally, the Fed’s decision sets the tone for monetary policies around the world.

There were synchronized rate cuts, pauses, and hikes between 2020 and 2022 as the world first battled economic disruptions and then rapid rise in prices. However, central banks began falling out of sync in 2023, as the Fed insisted on a “higher-for-longer" regime and countries prioritized their domestic conditions.

India has taken the same path, with Reserve Bank of India (RBI) governor Shaktikanta Das insisting earlier this month that some central banks “naturally and justifiably remain averse to premature loosening of policy before inflation has been durably reined in their countries". The Fed delivered the rate cut against the backdrop of a possible recession, but its chairperson, Jerome Powell, insisted it was done to avoid falling “behind the