Can Rupee Depreciate During Trump 2.0?

The Indian rupee may lose its value against the greenback during Donald Trump's second tenure. A report published by State Bank of India (SBI) titled ‘US Presidential Election 2024: How Trump 2.0 Impacts India's and Global Economy' stated that the domestic currency can fall between 8-10% against the dollar. However, this setback is set to remain only for a brief period of time, the report highlighted.

It said, “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 also shows no signs of changing trends, the report added.

The study said, “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.”

Though a strong dollar may lead to short-term capital outflows, the lower rupee may provide an export advantage in various sectors including textiles, manufacturing, and agriculture, thereby increasing revenue, the report said

Currently, the rupee peaked to its lowest, amounting to 84.46 due to persistent FII selling and robust demand for dollars. The Reserve Bank of India (RBI) intervened into the picture by selling dollars to stabilise the currency. Amit Pabari, Managing Director of CR Forex Advisors said, “The Reserve Bank of India (RBI) has been actively intervening to protect the rupee, selling dollars to stabilize the currency. However, this has led to a decrease. in India's forex reserves, which now stand at USD 682 billion down from a peak of USD 704 billion.”

Notably, RBI sold more than $26 billion since the September end to prevent further deprecation of the domestic currency.