Fis­cal Pru­dence Rekin­dles Rate-Cut Hopes

The Economic Times - - Companies: Pursuit Of Profit -

Mum­bai: The Bud­get has trig­gered op­ti­mism among in­vestors in the cur­rency and debt mar­kets af­ter a pro­longed lull as Fi­nance Min­is­ter Arun Jait­ley has com­mit­ted to a 3% fis­cal deficit tar­get to be achieved over the next three years, and re­frained from an­nounc­ing any pop­ulist mea­sures that could have fu­elled in­fla­tion.

While in­vestors are short­ing (sell­ing) dol­lar against the ru­pee, fund man­agers seek to gain from the ex­pected fall in yields over the next few months sub­ject to global moves.

“Bud­get has helped trig­ger re­newed op­ti­mism among in­vestors,” said Ashish Vaidya, head of trad­ing and ALM at DBS Bank. “Amid global and do­mes­tic fac­tors, in­vestors have now shrugged off wor­ries over fis­cal poli­cies and are star­ing at In­dia’s long-term growth prospect. The ru­pee would gain strength in the com­ing 2-3 months un­less the US’ new regime springs any sur­prise.” “With the gov­ern­ment show­ing fis­cal pru­dence, it pro­vides room for the Re­serve Bank of In­dia for rate cuts in fu­ture,” he said.

In his bud­get for 2017-18, the fi­nance min­is­ter has fo­cussed more on ru­ral, agri­cul­ture and in­fra­struc­ture spend­ing, seen as a key to long-term growth while he has not an­nounced any pop­ulist mea­sures that yields no pro­duc­tive re­sults. This has im­proved sen­ti­ment about In­dia among for­eign­ers.

More­over, the bud­get shows that the gov­ern­ment is com­mit­ted to fis­cal pru­dence as the fi­nance min­is­ter men­tioned of at­tain­ing the magic fig­ure of 3% fis­cal deficit (ex­cess of ex­pen­di­tures over rev­enues) over the next three years. The tar­get for next fi­nan­cial year is set at 3.2%.

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