14-Jan-2025, 01:44 PM
A recent analysis by the State Bank of India (SBI) indicates that the influence of former U.S. President Donald Trump’s return to the White House on the Indian rupee is likely to be temporary. The report, released on January 14, 2025, outlines expectations for the currency amidst potential economic shifts resulting from Trump’s policies, often referred to as the “Trump Tantrum.”
Historically, the rupee has shown varied responses to changes in U.S. leadership. The SBI report notes that while Trump’s presidency may introduce short-term volatility due to factors like increased tariffs and a stronger dollar, these effects are not expected to persist long-term. The analysis suggests that the rupee may experience a brief period of depreciation—projected between 8% and 10%—but will stabilize as market conditions adjust.
The report emphasizes that while Trump’s policies could initially lead to capital outflows as investors seek dollar-denominated assets, India’s robust economic fundamentals and large consumer base will eventually support the rupee. SBI’s historical data shows that during Trump’s first term (2016-2020), the rupee depreciated by 11%, which was less severe than during President Biden’s term, where it declined by 14.5%.
SBI also highlights that the current depreciation of the rupee can benefit export-oriented sectors such as textiles, pharmaceuticals, and manufacturing, potentially boosting their revenues despite rising import costs for commodities like oil. The analysis suggests that a weaker rupee could enhance India’s competitiveness in global markets.
Moreover, the report points out that the Reserve Bank of India (RBI) has demonstrated a higher tolerance for a weaker rupee recently, indicating a strategic shift in its foreign exchange market interventions. This approach may further mitigate extreme fluctuations in the currency’s value.
Looking ahead, economists predict that any significant impact from Trump’s policies will likely be short-lived as both domestic and international markets adapt. The interplay between U.S.-India trade relations and broader economic indicators will play a crucial role in determining the rupee’s trajectory in the coming months.
In summary, while Trump’s return may introduce initial challenges for the Indian rupee through increased market volatility and potential depreciation, SBI’s analysis suggests that these effects are expected to be temporary, with long-term stability anticipated as India’s economic fundamentals remain strong.
