Rupee may depreciate 8-10% during 2nd Trump presidency, says SBI report

The State Bank of India, in its latest report, has revealed that the rupee could undergo a depreciation of 8 per cent-10 per cent against the US dollar with Trump’s return to power, even as the local currency recorded an all-time low of 84.38 on Monday.
SBI’s report, titled US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy, emphasised that the rupee could have a brief spell of depreciation against the US dollar before strengthening again.

‘Unfounded’ fear

The report said that “the fear” of rupee undergoing a sharp depreciation has no basis as the range of depreciation would be small and the average exchange rate would be somewhere between Rs 87-92.
It said that “10-year yield shows no obvious trends, and effect will be context sensitive going ahead… USD/INR has shown range bound movement and rupee can have brief spell of depreciation followed by appreciation…Volatility in Indian equity markets showing signs of reduction”.

Indian markets and Trump

Indian markets and certain asset classes are experiencing a temporary boost with Donald Trump’s historic return as the 47th President of the United States, even though attention is diversified towards broader economic impacts and supply chain adjustments.
The Rupee, during Trump’s first term, saw a depreciation of 11 per cent, lesser than when Biden held office.

How can a weaker rupee offer a competitive advantage?

The report said that even though a stronger dollar could lead to short-term capital outflows as investors shift to dollar-denominated assets, a weaker rupee could offer a silver lining by providing an export advantage. This may help boost revenues in sectors like textiles, manufacturing, and agriculture.
While a stronger dollar might result in short-term capital outflows for short-term as investors flock to dollar-based assets, on a positive note, a lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture, the research report said.
SBI said that Rupee depreciation would be having a slight impact on inflation.
“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.
Depreciation is also likely to increase the import cost of oil and other commodities.

(With inputs from agencies)