Bonds rally as government avoids large fiscal stimulus

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Published: August 26, 2019 12:23:49 PM

Sovereign bonds in India rose after the government desisted from providing a large fiscal boost to the economy, easing fears it may borrow more to fund the stimulus.

Fund raising, rate cut, rbi rate cut, rbi credit flow, NBFCs, NCD market, stock market, share market, bses, sensex, RBI monetary policy, Rate cut, policy repo rate, Global growth, BCBS, inflation, global economic indicators, India’s banking sectorThe rupee weakened in line with emerging-market peers after the escalation in the Sino-American trade war.

Sovereign bonds in India rose after the government desisted from providing a large fiscal boost to the economy, easing fears it may borrow more to fund the stimulus. The rupee weakened in line with emerging-market peers after the escalation in the Sino-American trade war. Stocks were little changed after a brief spurt in opening trade on doubts about the effectiveness of the measure amid a deteriorating global environment. Finance Minister Nirmala Sitharaman late Friday scrapped a tax on overseas funds, allowed concessions on vehicle purchases and hastened an infusion of an already announced 700 billion rupees ($9.8 billion) of capital in state banks. She didn’t outline any fiscal support the businesses had been calling for.

“The measures should assuage concerns of investors as the Finance Minister refrained from making populist overtures,” said Shubhada Rao, chief economist at Yes Bank Ltd. The steps show “the government has begun to respond to the economic pain,” she said.

The yield on the benchmark 10-year bond fell four basis points to 6.53% at 11:26 a.m. in Mumbai. The rupee slid 0.7% to 72.1975 per dollar. Yields have risen 22 basis points over the past three weeks on concerns that the government may spend more to pump-prime a slowing economy.

The Sensex rose 0.3%, after changing direction at least six times. On Friday, the gauge completed a sixth week of losses in seven as investors weighed the outlook for growth amid signs of slowing local demand and concerns over the U.S.-China trade spat.

“Indian equities were due for a rebound after a steep decline and Friday’s announcement provided that trigger, but the global cues aren’t conducive,” said Deepak Jasani, head of retail research at HDFC Securities in Mumbai. “I’m not sure if these steps will make material impact on stocks beyond a few weeks.”

Bond traders are also focusing on a central bank board meeting later today, which will likely announce the final dividend that it will transfer to the government. The Reserve Bank of India will also consider the report of a panel studying how much reserves the authority should hold, according to an official aware of the development, the Bloomberg Quint reported.

Any transfer of surplus capital by the RBI will help the government meet its goal of narrowing its budget deficit over time.

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