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Informist, Thursday, Nov. 7, 2024

 

--RBI Sankar: Trump presidency can lead to short-term volatility in fincl mkts 

--RBI Sankar on US election: Well equipped to tackle exchange rate volatility 

--CONTEXT: RBI Deputy Governor T Rabi Sankar at Business Standard BFSI Summit 

 

MUMBAI – Financial markets may see heightened volatility in the near term with a change in the government in the US, Reserve Bank of India Deputy Governor T. Rabi Sankar said at the Business Standard BFSI Summit on Thursday. "There will be short-term volatility in the markets, we are seeing a change in the government in the largest economy of the world...we already saw dollar index rising and US stocks doing very well," Sankar said. In the US presidential election held on Tuesday, former president Donald Trump won with 295 electoral votes, defeating Democrat candidate and Vice-President Kamala Harris.

 

After the initial trends started showing Trump as the favoured candidate, equities markets rejoiced while the Indian rupee suffered heavy losses. The Nifty 50 closed 1.1% higher on Wednesday, with 40 of its stocks in the green. The BSE Sensex also closed 1.1% up. On other hand, the rupee fell to a record low of 84.28 a dollar on Wednesday and continued its fall on Thursday as well after the dollar strengthened across the board. "We are well-equipped to tackle any excessive volatility in the exchange rate," Sankar said. 
 

Sankar also said there was a need to look beyond the near-term volatility in financial markets as the long-term impact will depend on how tariffs and global trade are affected in Trump's presidency. Trump plans deregulation, lower taxes, new tariffs, and curbing illegal immigration, which might increase inflation and growth while impeding the Federal Reserve's ability to lower interest rates. Trump's pledge to impose 10–20% taxes on imports into the US, and also 60–100% tax on Chinese goods may keep investors at edge at least in the near term.

 

Sankar said the impact will also depend on how the US manages its fiscal policies as there were talks of tax cuts and increase in expenditure which could lead to more debt. An increase in issuance of US debt can lead a rise in interest rates across the world which could affect the Indian bond market as well, Sankar said. However, the volatility in bond market will be manageable due to inflows from Indian government bonds' inclusion in global bond indices operated by JP Morgan, Bloomberg Index Services, and FTSE Russell.

How the US manages the geopolitical situation is also to be watched out for, Sankar said. In his campaign running up to the elections, Trump had said that he would be able to end Russia's invasion of Ukraine in 24 hours. He also said that Israel would be "eradicated" if he lost the election.  End

 

US$1 = INR 84.37

 

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

 

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