Mumbai: India’s rupee fell to an 11-week low and sovereign bonds slumped on concern the nation’s fiscal deficit will widen after the government said it was considering measures to boost growth.
Policymakers are studying economic indicators and appropriate action will be taken at the right time, the Finance Ministry wrote on Twitter Thursday, citing Finance Minister Arun Jaitley’s speech at an event. Concerns about India’s public finances heightened as the ET Now television channel wrote in Twitter posts that the government was weighing a stimulus package of 400 billion rupees (Dh22.7 billion, $6.2 billion).
No decision has been taken so far on the stimulus, D.S. Malik, spokesperson for the ministry, said by phone. The TV channel, which cited unidentified people familiar with the matter, said Prime Minister Narendra Modi was likely to relax the deficit target for the year ending in March. The goal has been set at 3.2 per cent of gross domestic product. The government will announce economic measures after consulting Modi, Jaitley said on Wednesday.
Financing the stimulus
“The market is grappling with this new risk,” said Vijay Sharma, executive vice-president for fixed income at PNB Gilts Ltd. in New Delhi. “There is uncertainty about how the government is going to finance the stimulus.”
The rupee sank as much as 0.8 per cent to 64.7750 per dollar, its weakest level since July 6. The currency was down 0.6 per cent at 64.6850 as of 1:56pm in Mumbai. State-run banks were seen selling dollars, likely on behalf of the central bank, as the rupee extended declines, two Mumbai-based traders said, asking not to be identified because they aren’t authorised to speak publicly.
The yield on the benchmark 6.79 per cent bonds due May 2027 surged nine basis points to 6.67 per cent, heading for its highest close since May. The benchmark stock index dropped 0.2 per cent.
India’s fiscal deficit already reached 92 per cent of the budget estimate in the first four months of the financial year that began April 1, according to the Controller General of Accounts.