Trump Tantrum
SBI report says impact on rupee from Trump's US presidency to be short-lived
This story was originally published at 19:30 IST on 14 January 2025
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NEW DELHI – The impact on the Indian rupee from Donald Trump's US presidency will be temporary, and the currency will stabilise after the initial shock, the State Bank of India said in a report released Tuesday. The rupee has depreciated 2.8% against the dollar amid a globally strengthening US dollar ever since Trump got re-elected as the US President in early November. Trump is set to take office on Monday.
"Empirical evidence suggest that Trump Tantrum for INR (Indian rupee) will be a short-term phenomenon, and rupee should adjust post the initial shock of early days of Presidency. Contrary to market perceptions, rupee seems more susceptible in a non-Trump regime/Democratic regime," SBI's Group Chief Economic Adviser Soumya Kanti Ghosh said in the report.
The report noted that the Reserve Bank of India's regular two-way intervention helped the rupee remain less volatile through the last year, adding that if the central bank had not intervened in the market, the rupee may have depreciated 4% against the dollar and come closer to 88-a-dollar as the minimum threshold level.
Further, Ghosh said the depreciation in the Indian unit appears to be a knee-jerk reaction, pricing in the uncertainties as tensions mount between geographies, and should subside soon with India's sound macroeconomic outlook. The rupee fell past the psychologically-crucial 86-per-dollar mark on Monday and posted its worst decline in a day in nearly two years. The local unit fell to a lifetime low of 86.6500 a dollar on Tuesday.
The report highlighted that the onshore non-deliverable forwards market has gained traction largely due to the concerted efforts of the RBI, but also called for the central bank to look at disseminating the information and trends at periodic levels about the NDF market to ensure the big banks of the world, acting as market makers in NDF, do not step over the boundaries.
The recent sharp depreciation in the rupee against the greenback has also brought to light the need for a better mechanism for managing rupee volatility in the spot, according to Ghosh. "Another option that RBI may explore is to write an option to lend its FX reserve to major FX buyers such as OMC (oil marketing company) at time of stress when USD/INR (dollar/rupee) crosses stress threshold," he said in the report.
Ghosh also strongly recommended that the cash reserve ratio be brought down to 3% as the biggest challenge for the RBI's liquidity management in the next couple of years will be taking care of an estimated INR 7.5 trillion fund flow through Integrated Financial Management and Information System. A reduction in CRR to 3% could release an additional INR 2.32 trillion into the banking system, he said. Presently, CRR is 4.00% of banks' net demand and time liabilities.
On Tuesday, shares of SBI ended 2.56% higher at INR 748.15 on the National Stock Exchange. End
US$1 = INR 86.63
Reported by Pratiksha
Edited by Tanima Banerjee
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