ANZ tips fiscal deficit of 3.3% for India in fiscal 2019

NEW DELHI – India’s  FY2019 (fiscal year ending March 2019) Union Budget, due next Thursday, February 1, will be the last full year budget of the Modi Government before the general election in 2019 – and the first full year budget under the GST regime. ANZ Bank expects the Government to set the FY2019 fiscal deficit at 3.3% of GDP, “higher than what the initial medium term consolidation path had warranted”. 

“For FY2018, we expect a fiscal deficit at 3.5% of GDP versus the Government’s target of 3.2%,” ANZ says.

“We believe the fiscal stance is unlikely to be inflationary on its own, assuming focus remains on expenditure quality. We expect CPI to average 5.1% in FY2019, higher than our estimate of 3.6% in FY2018.

“We continue to expect the central bank to keep the repo rate at 6.00% in 2018. However, it is likely that the underlying rhetoric in policy statements will remain hawkish.”

ANZ says INR bonds have come under pressure since late 2017, given the deteriorating macro backdrop.

“Markets will now look for the FY2019 bond supply outlook for guidance. The FY2019 supply-demand dynamics will be slightly negative in our view.

“The increase in net supply should be manageable; however, we see downside risks to banks’ demand projections. Against this backdrop, any increase in the Foreign Portfolio Investment (FPI) debt limit will mitigate supply-demand risks.”  www.live.anz.com (ATI).