Finance Ministry’s balancing act, RBI’s opportunity

For India watchers, next week will be one of the most important of the year. We think the Finance Ministry will attempt to demonstrate prudence in the Union Budget on Monday, though obfuscation of the true fiscal position through greater off-balance sheet activities risks undermining credibility. Meanwhile, markets and analysts appear convinced that rates will be kept on hold at the conclusion of the MPC meeting on Friday, but we think the recent sharp drop in inflation has left the door ajar for a rate cut.