A recent SBI research report predicts that the rupee may depreciate 8-10% against the U.S.. dollar during the Trump 2.0 regime.
Rupee May Depreciate During Trump Reign
While that being said the local currency hit its all-time low on Monday (November 11, 2024).
Here, we are talking about a report, titled U.S. Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy.
This report emphasized that the rupee can have a brief spell of depreciation against the U.S. dollar, followed by appreciation.
It appears that Donald J Trump’s historical comeback as the 47th President of the United States adds a morphine shot to the markets.
This would affect the select asset classes even as the focus is now shifting to wider economic ramifications and supply chain realignments, as per this report.
Further highlights, “Trump’s victory introduces a mix of challenges and opportunities for India. While the potential for increased tariffs, H-1B restrictions, and a strong dollar could bring short-term volatility…But it also presents India with long-term incentives to expand its manufacturing, diversify export markets, and enhance economic self-reliance.”
The 10-year yield shows no obvious trends, and the effect will be context-sensitive, going ahead, the report noted.
The Fear Is Unfounded
According to the SBI’s study, “USD/INR has shown range bound movement, and the rupee can have a brief spell of depreciation followed by appreciation…Volatility in Indian equity markets showing signs of reduction.”
This appears to have started as the Rupee started declining for the fourth straight session and dropped 2 paise to hit a new lifetime low of 84.39 (provisional) against the US dollar on Monday.
It seems to have been weighed down by persistent foreign fund outflows and a muted trend in domestic equities.
The rupee is likely to remain under pressure unless there is a softening in the dollar index or a slowdown in foreign fund outflows, said the Forex traders.
Interestingly this report emphasized that “the fear” that the rupee will depreciate sharply is unfounded.
To support this theory, the rupee depreciated by 11 percent during Trump 1.0 which is less than it depreciated during the Joe Biden term, the report said.
This holds a great significance as a stronger dollar might result in short-term capital outflows for short-term as investors flock to dollar-based assets.
On the positive side, a lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture, as per the research report.
But, the depreciation of the rupee may increase the import cost of oil and other commodities.
