E-Paper
Bonds rally as government avoids large fiscal stimulus
Slump in international crude oil and the US bond yield also boosted sentiments in the bond market.Rupee opened at 71.98 to a dollar and touched a low of 72.06 a dollar.
The 10-year government bond yield fell over 6 basis points on Monday as finance minister Nirmala Sitharaman reaffirmed the government’s confidence of meeting its fiscal deficit target for financial year 2020. Slump in international crude oil and US bond yield also boosted sentiment.
At 9.13am, the 10-year government bond yield was at 6.517% compared with its previous close of 6.574%. Bond yield and prices move in opposite directions.
“The growth slowdown is part-cyclical and part-structural. To counter it, there are typically four policy levers: fiscal, monetary, reforms, and exchange rate. So far, monetary policy has done much of the heavy lifting. The government has now demonstrated its penchant for triggering the levers of reforms and possibly exchange rate, while still keeping the powder dry on fiscal stimulus” said Nomura Research in a note to its investors.
“Not opting for short-term populism lends credence to the observation that the government’s focus remains firmly on an investment-led recovery (rather than excessive reliance on consumption). In our opinion, this is the correct approach. Continued fiscal prudence and commitment to reforms should be seen positively from a monetary policy perspective”, the research firm added.
The government on Friday announced rollback of enhanced super-rich tax on foreign and domestic equity investors, exemption of startups from ‘angel tax’, a package to address distress in the auto sector and upfront infusion of ₹70,000 crore into public sector banks, in efforts to revive economic growth from a five-year low.
Meanwhile, the Indian rupee weakened to hit a fresh eight-month low tracking fall in its Asian peers against US dollar following an escalation of the US-China trade war.
The currency opened at 71.98 to a dollar and touched a low of 72.06 a dollar. The domestic currency was trading at 72.06, down 0.56% from its previous close of 71.67.
Trade tensions worsened as US President Donald Trump said Friday he’s raising tariffs further on Chinese imports in response to Beijing’s retaliation earlier.
The benchmark equity index Sensex was up 0.6% at 36701.16 points. So far this year, the index has risen 3%.
In the year so far, rupee has weakened 2.64%, while foreign investors have bought nearly $7.89 billion in Indian equities and $3.81 billion in debt.
Asian currencies were trading lower. China Renminbi was down 0.65%, South Korean won lost 0.5%, China Offshore fell 0.42%, Taiwan dollar declined 0.40%, Philippines peso fell 0.37%, Indonesian rupiah was down 0.32%, Malaysian ringgit lost 0.32%, Singapore dollar fell 0.12%, and Japanese yen declined 0.08%.
The dollar index, which measures the US currency’s strength against a basket of major currencies, was at 97.686, up 0.05% from its previous close of 97.64.
(Bloomberg contributed this story.)
