The bond markets, which were fearing the worst last week, were pleasantly surprised with the Budget 2016-17. By adhering to the fiscal deficit of 3.9 per cent for FY16 and targeting 3.5 per cent for FY17 and 3 per cent for FY18, the government has reinforced its commitment to FRBM and maintained its “prudent fiscal management” credibility. It has shown restraint in any manner of fiscal stimulus, which is appropriate for an economy with an expected growth of 7.5 per cent and a likely inflation of 5 per cent. The markets rallied sharply by over 15bps in the day and by over 25 bps over last two days. There is an expectation of a 25-50 bps of rate cut from the RBI as one of its critical requirements has now been met.