RedditoCapital by RedditoCapital
Posted on 02-07-2019 | 12:38:49PM

Bond vigilantes seen giving Narendra Modi a pass on wider deficit

It turns out that bond traders in India can be forgiving of budget misses when economic growth is threatened.
Prime Minister Narendra Modi will widen the budget deficit target to 3.5% of gross domestic product on Friday, up from a February estimate of 3.4%, according to the median forecast of 10 traders and analysts in a Bloomberg News survey. While there may be a knee-jerk reaction in markets, it won’t derail India’s nascent bond rally, they say.
Traders say Modi has room to loosen the purse strings as inflation is subdued, an outlook shared by the Reserve Bank of India when it cut rates for a third time this year in June. The most aggressive policy easing in Asia has supported a rally in bonds and lured foreign inflows of $1.2 billion last month.
The fiscal situation is not worrisome, said Mahendra Jajoo, Mumbai-based head of fixed income at Mirae Asset Global Investments. The slight adjustment in the deficit target will be mainly on the back of tempering growth expectations.
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