The State Bank of India (SBI) in its latest report predicts that the rupee could depreciate by 8-10% against the US dollar if Donald Trump returns to power. The report comes as the rupee hit an all-time low of 84.38 on Monday. According to SBI’s US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy, the local currency may experience a short-term dip before strengthening again.
‘Unfounded’ Fears of Sharp Depreciation
The SBI report dismissed concerns about a sharp depreciation of the rupee, stating that the fears were “unfounded.” It emphasized that the rupee’s depreciation would be modest, with the average exchange rate expected to range between Rs 87-92. “The 10-year yield shows no obvious trends, and the effect will be context-sensitive going forward…USD/INR has exhibited range-bound movement, and the rupee can experience a brief spell of depreciation followed by appreciation,” the report said. The report also noted that volatility in Indian equity markets has started to ease.
Indian Markets and Trump’s Impact
Indian markets and some asset classes are currently seeing a temporary boost with the possibility of Trump returning as President. However, the focus remains on broader economic impacts, including supply chain adjustments. During Trump’s first term, the rupee depreciated by 11%, which was less than the depreciation seen during Joe Biden’s presidency.
How a Weaker Rupee Could Benefit Exports
Despite concerns about short-term capital outflows caused by a stronger dollar, SBI pointed out that a weaker rupee could provide a competitive advantage for exports. This could benefit sectors like textiles, manufacturing, and agriculture. “A lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture,” the report explained.
Impact on Inflation and Import Costs
SBI also suggested that the rupee’s depreciation would have a minimal impact on inflation, estimating that a 5% decline would increase inflation by only 25-30 basis points. However, the depreciation is likely to raise the cost of imports, particularly oil and other commodities.