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  • Latest financial measures aim to boost consumption through credit.
  • USD/INR neutral, risk skewed to the downside in the short-term.

The USD/INR pair is trading flat at around 71.40, recovering from an early slide to 71.23 during Asian trading hours and neutral weekly basis. Despite the persistent pressure on the American currency, the INR is unable to attract investors, amid reeling pressure on the local economy.

The Indian Central Bank has cut rates by 135bps throughout the year to no avail, as consumption remains depressed. Most analysts believe that the main reason beyond this is the fact that banks failed to pass lower rates to customers.

However, the Finance Minister has announced this week a series of measures aimed to correct the situation. Firstly, the limit that government ministries and departments can spend from the total financial budget has been reduced from 33% to 25%. It also includes a cap of 10% (15% previously) of the budget that can be disbursed during January to March quarter, the final quarter of the fiscal year. Additionally, the SBI, the country’s largest lender, eased loan rates mortgage borrowers and small businesses.

The cross has been range-bound since late September, holding above 70.61 and capped by 72.43. Such range has been shrinking ahead of the year-end, leaving a neutral stance in the daily chart. In the shorter-term, USD/INR is at risk of falling with the immediate support being the daily low, followed by 71.06, Dec 19 low. Resistances are located at 71.55 and 71.76, this last the high set last week.