Fiscal Prudence Rekindles Rate-Cut Hopes
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%.