SBI report projects 8-10% depreciation in rupee during Trump’s second tenure as US President

The State Bank of India (SBI) has projected that the Indian rupee could experience an 8-10% depreciation against the US dollar if Donald Trump returns to the White House in 2024. This prediction comes as the rupee hit a historic low of 84.38 against the dollar on Monday. SBI’s report, titled US Presidential Election 2024: How Trump 2.0 Impacts India's and Global Economy, suggests that while the rupee may weaken briefly, it could eventually regain strength.

SBI’s analysis addresses concerns over a sharp decline, calling such fears “unfounded.” The report forecasts the rupee’s exchange rate will likely stabilize between Rs 87 and 92 per dollar. Additionally, it noted that the 10-year yield shows no clear trends, and market volatility is easing, indicating limited long-term impact on Indian equity markets.

During Trump’s first term, the rupee depreciated by 11%, which SBI points out is less than the decline seen under Biden’s presidency. The report adds that Indian markets and asset classes have seen a temporary boost with Trump’s potential return to office, while broader economic impacts are also under consideration.

A weaker rupee could, however, offer an advantage to India’s export sectors, particularly textiles, manufacturing, and agriculture, by making Indian goods more competitive in global markets. Conversely, a stronger dollar might trigger short-term capital outflows as investors gravitate towards dollar assets.

On inflation, SBI estimates that a 5% rupee depreciation would likely raise inflation by a modest 25-30 basis points. However, the report warns that depreciation could increase import costs, especially for oil and other essential commodities.