The FM’s proposal to hike fiscal deficit to indirectly indicate keeping small savings rates at an elevated level and less incentive for life insurers to buy government securities would keep the long-term government yields at an elevated level.

This, in turn, would leave less option for the RBI to cut rates in the short term, bond market players said. However, given the limited options that the finance minister had to manoeuvre with the Budget numbers, they feel the government has aimed at boosting “growth through acceptable level of fiscal expansion and funding the same through higher small savings collection thereby avoiding crowding out,” said Ram Kamal Samanta, VP (investment), Star Union Dai-ichi Life Insurance.

It being a Saturday, with the bond market closed for trading, dealers will await Monday’s trading session to gauge the full impact of the Budget proposals.

Bond market players also feel that with economic recovery funded through fiscal expansion, it may exert some pressure on interest rates, which in turn is likely to be contained by an accommodative policy stance by the RBI and resumption of FPI buying of Indian bonds owing to the extension of lower withholding tax facility.