In its latest report, published early Monday in Asia, the ING anticipates the Indian government’s latest measures to have a little impact on their forecasts of a weaker Indian Rupee (INR) fueling the USD/INR pair towards 73.50 level by the end of 2019.
Key quotes
“In a surprise move last Friday, Finance Minister, Nirmala Sitharaman, announced a significant tax reduction for domestic companies. The move is estimated to cost about $20 billion to the government in lost revenue.”
“Aggressive stimulus adds to the economy’s long-term plight by further delaying fiscal consolidation. Certainly, the immediate implication will be a blowout of the fiscal deficit well above the government’s 3.3% of GDP projection for the current fiscal year.”
“There is no clarity about how the government will be financing this wider deficit. The $24 billion payouts from the RBI's coffer won’t be enough, nor can the government continue to rely on such monetization of the deficit.”
“The Reserve Bank of India’s (RBI) aggressive monetary easing with a total 110 basis point (bp) policy rate cuts implemented in four policy meetings so far this year has failed to arrest the growth slowdown.”
“Whether this helps to kick-start the economy is still to be seen. For now, the negative consequences of derailed fiscal consolidation on India's external creditworthiness keeps a weakening pressure on local financial assets.”
“We retain our end-2019 USD/INR forecast at 73.50 (spot 70.95).”
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