Will Trump's Comeback Weaken the Indian Rupee?
The 2024 Presidential Election in the United States returned
Donald Trump to power. And this occurrence is significant for us Indians since
SBI has predicted that the Indian rupee will depreciate by 8 to 10% as a result
of Trump's victory. During his first tenure, the Indian rupee depreciated by
almost 11%. This article discusses practically every facet of the Indian
currency's depreciation as a result of the 2024 US Presidential Election.
Let’s begin with a little “wait what?” moment.
Does this look like an alarming thing?
Well, Depreciation of Currency is not always an alarming
situation. Let us dive into this very complex yet interesting thing.
What
is Currency Depreciation?
Currency Depreciation occurs when a currency loses its value
against another foreign currency. In other terms, if buying a foreign good
becomes more expensive than before, it indicates currency depreciation. For
example, if you used to pay Rs. 80 for a 1 USD goods and now had to pay Rs. 88,
it shows the Indian currency has devalued.
Currency depreciation, if done properly and gradually,
- increases
a country's export competitiveness as exporters may be able to cut their
prices overseas when faced with a declining currency,
- may
reduce its trade deficit over time.
- local
businesses will see reduced competition from international sellers in
their home markets as a result of currency devaluation.
However, a rapid and significant currency decline may alarm
foreign investors, who are concerned that the currency could fall further,
prompting them to withdraw portfolio assets from the nation.
Current
Indian Rupee Status:
Due to both domestic and international economic forces, the
rupee frequently fluctuates between 80 and 85 Indian rupees to the US dollar.
This means for every USD, we pay 80 to 85 rupees in trade. India's high rates
of inflation raise domestic expenses and diminish purchasing power, which might
further weaken the rupee. Also India buys more goods than it exports,
particularly essential commodities like oil, which puts pressure on the rupee
and raises demand for the US dollar.
Since international investors typically favor the stability
of the dollar, events like changes in oil prices, geopolitical tensions, and
increases in U.S. interest rates have an effect on the value of the rupee.
Reasons
for Potential Rupee Depreciation due to US Politics 2024:
Let us first look into this report by SBI related to the
Indian currency depreciation/appreciation data since 2012:
|
Presidency |
Average
Exchange Rate (INR) |
Appreciation/Depreciation
(%) |
Daily
Volatility |
|
2012-2016
(Obama 2.0) |
62.2 |
-28.7 |
4.1 |
|
2016-2020 (Trump 1.0) |
69.2 |
-11.3 |
3.7 |
|
2020-2024
(Biden) |
79.3 |
14.5 |
4.1 |
|
2024 (last one month) |
84.1 |
-0.3 |
0.1 |
|
2025-2029 (Trump 2.0) |
87-92 |
-8 to -10 |
- |
This data shows further depreciation of Indian Rupee may
occur in Trump's Regime. Let us get into the reasons why US politics could
Depreciate the Rupee, by looking into some of the past policies of Trump.
A number of policies that affected the Indian Rupee were
made possible by Trump's election victory in 2016:
- Interest
Rate Hikes: In order to combat inflation, Trump's economic policy
included advocating for higher interest rates in the US. A stronger dollar
and a weaker rupee result from investors finding the currency more
appealing due to higher interest rates in the United States.
- Trade
conflicts: Trump's "America First" stance resulted in trade
conflicts with nations such as China, which caused supply chains
throughout the world to break down and international markets to become
unclear. The Rupee and other developing market currencies were affected by
the volatility.
- Trump
levied tariffs on a number of nations like China, Mexico during his
previous presidency, and a similar strategy may have an impact on Indian
exports in industries like IT services, textiles, and medicines.
- Global
Investment Shifts: The dollar strengthened and the Rupee became less
attractive as a result of Trump's economic plans, which attracted a flood
of capital to American assets.
- Geopolitical Tensions: The geopolitical instability brought about by Trump's foreign policy, particularly his position on international trade deals and alliances, frequently causes investors to seek for safer, more stable assets, such as the US dollar, which has an impact on other currencies.
What
Should we do if this Depreciation occurs?
In order to combat any devaluation, India can take proactive
measures like:
- Increasing
Foreign Exchange Reserves: India may contribute to the stabilization of
the rupee in the face of a stronger dollar by fortifying its reserves.
- Promoting
Domestic Manufacturing: By promoting India's "Make in India"
campaign, import dependency can be decreased, hence lessening the impact
of inflation caused by the depreciation of the rupee.
- Targeted
Economic Policies: Through calculated interventions, the Reserve Bank of
India (RBI) could put policies in place to regulate currency volatility
and rein in inflation.
Should
we worry more or less?
Trump's possible comeback presents India's economy and currency with both threats and benefits. The expectation of less global uncertainty and the belief that Trump's policies will promote global growth are making Indian stock markets strong. The rise is a sign of growing investor confidence, especially in industries that stand to benefit from Trump's business-friendly policies, like technology and real estate. Short-term market mood in India seems to be positive, supported by confidence about US plans and the durability of the Indian market, even though the rupee's depreciation is still a cause for concern.
Blog written by Sakshi sharma and Karishma Giri
References:
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