Rupee may depreciate 8-10% during Trump 2.0, says SBI report
The rupee may depreciate 8-10% against the U.S.. dollar during the Trump 2.0 regime, said a SBI research report, even as the local currency hit its all-time low on Monday (November 11, 2024).
The report, titled U.S. Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy, emphasised that the rupee can have a brief spell of depreciation against the U.S. dollar, followed by appreciation.
Donald J Trump’s historical comeback as the 47th President of the United States adds a morphine shot to the markets and select asset classes even as the focus is now shifting to wider economic ramifications and supply chain realignments, the report said.
“Trump’s victory brings challenges like tariffs and H-1B restrictions, but offers India long-term opportunities to boost manufacturing and economic self-reliance.”
It further said the 10-year yield shows no obvious trends, and the effect will be context-sensitive, going ahead.
“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,” the SBI’s study said.
Declining for the fourth straight session, the rupee dropped 2 paise to hit a new lifetime low of 84.39 (provisional) against the US dollar on Monday, weighed down by persistent foreign fund outflows and a muted trend in domestic equities.
Forex traders said the rupee is likely to remain under pressure unless there is a softening in the dollar index or a slowdown in foreign fund outflows.
Impact of Trump’s Second Term on India: Economic Shifts and Opportunities
The report emphasised that “the fear” that the rupee will depreciate sharply is unfounded.
A stronger dollar may cause short-term capital outflows, but a weaker rupee could boost exports in textiles, manufacturing, and agriculture.
“Still, we expect a depreciation of 8-10 per cent during Trump 2.0,” the SBI research report said.
It also noted that the depreciation of the rupee may increase the import cost of oil and other commodities.
“As per our estimate, a 5 per cent decline in rupee will increase inflation by 25-30 bps. So, the impact will be very less on inflation,” it said.
The report suggests India may see shifts in FDIs during Trump 2.0, similar to the regulatory changes seen in Trump 1.0.
“However, India is no longer dependent on the traditional sources of FDI inflows… unlike the recent past, FDI is now coming in many new sectors like non-conventional energy, sea transport, medical and surgical appliances, etc,” it said.
This trend could continue, thus offsetting the possibility of a decline in FDI flows in traditional sectors in Trump 2.0, if any.
During Trump 1.0 the non-immigrant visas issued by the U.S. largely stagnated around 10 lakh per year. However, in 2023, about 14 lakh Indians received non-immigrant visas, the report said.
