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Budget 2019: Key takeaways for currency derivatives traders

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Publish Date: July 05th, 2019

By: Anindya Banerjee, Head of Currency & Interest Rates Research

Govt has broken the glass ceiling on borrowing by stepping across the border for financing. The message is clear and it was inevitable too, that considering India's economic structure, which is consumption driven, India needs to depend on foreign savings to grow. Govt has continued its focus on making the regulatory landscape frictionless. It has also dusted away the defunct concept of "Crowding out" of savings. Crowding out does not work when an economy is open to capital flows. Whatever inertia was there on govt's part they have done away with it. There is positive externality from the move: This will help develop of a credit default swap market for sovereign and which in turn can help develop the credit market for a whole host of non-sovereign borrowers from India & can help India become part of global bond index etc

Fiscal math: Revenue projections appear quite lofty, but bond market may not get too worried as now GoI will tap offshore too. However, some demand for INR bonds may be cannibalised by offshore bonds from foreign players.


  • Bond yields can continue to fall due to lower oil prices, government opening up offshore borrowing route, weak economy, disinflation, surplus liquidity and RBI on a path of easy money.
  • Indian Rupee can continue to benefit from the emphasis on increasing foreign inflows into the country. However, global environment also going to call the shots. If Dollar remains soft due to Fed reducing rates, then upside in USDINR remains capped now around 69.50 levels on spot. Downside can be 68.00 and during speculative excesses can be even stretch towards 67.50 levels.

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