Why bond traders are seen forgiving Modi govt on wider budget deficit

Prime Minister Narendra Modi will widen the budget deficit target to 3.5% of gross domestic product on Friday

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Budget 2019: 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...read more

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