For monetary policy, limited fiscal implications from the latest fiscal measures keep the door open for further easing, said Radhika Rao, economist at DBS Group Research.
"We retain our call for another 15-25 bps cut at the October meeting on the back of a weak 2Q GDP outcome. Odds of further rate cuts are rising as a preference to preserve policy space might be overridden by growth concerns.
"We now expect another 15-25 bps rate cut in December. Challenging global conditions and a dovish FOMC add to the case for the RBI to take a growth supportive stance," Rao said.
More sector specific supportive measures from the government are expected. Fiscal costs will be kept to a minimum. However, if the slowdown seems entrenched, broader stimulus can be expected next year, said the report.
For the markets, worries over fiscal support and new 10-year issuance will put pressure on old 10-year prices.
Rest of the curve is likely to ease as rate cut expectations are set to return, thereby steepening the yield curve.
The rupee will continue to watch CNY (Chinese Yuan Renminbi) movements and broader US dollar bias, which at this juncture points towards further rupee weakness owing to a weak global environment, according to the report.
Real GDP slowed to 5 per cent year-on-year in 2Q (first quarter of FY20) from the first quarter's 5.8 per cent, below DBS' sub-consensus and market expectations.
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