India Deficit Above 5% for Second Year Limits Rate-Cut Room

The Reserve Bank of India’s scope for a series of interest-rate cuts to bolster a slowing economy may be hampered by inflation risks from a budget deficit projected to exceed 5 percent for a second year.

Benchmark bonds capped their biggest weekly decline in seven as Finance Minister Pranab Mukherjee unveiled an annual budget yesterday that will require record borrowings of 5.69 trillion rupees ($113 billion) to finance a gap estimated at 5.1 percent of gross domestic product. The deficit for the year through March 31 is projected at 5.9 percent, wider than the 4.6 percent target set in 2011.