ANZ On India Budget, RBI Rate Cuts Expected In Q3

ANZ also has a mostly constructive view post the India budget. It looks for the RBI easing cycle to commence in Q3 of this year, in line with the consensus.

• ANZ: The planned reduction in the FY25 (April 2024–March 2025) fiscal deficit ratio to 5.1% of GDP is a credible step towards reaching the target 4.5%by FY26. Nominal GDP growth and revenue targets look achievable.
• The sharp slowdown in revenue spending in FY25 that underlies the fiscal consolidation effort could be negative for growth, especially with the backdrop of consumption weakness. However, a stronger capex pulse could partly mitigate the drag from a contractionary fiscal policy.
• The deflationary impulse from fiscal consolidation coincides with decent progress on inflation. We now expect the repo rate to be lowered by 100bpcumulatively, with the first cut likely in early Q3 2024. The rate-cutting cycle could begin sooner if food disinflation occurs at a faster pace.
• Overall, the FY25 budget is a significantly positive development and comes just ahead of the inclusion of Indian government bonds (IGBs) in JPMorgan’s GBI-EM.