Impact of Trump's presidency to be short-lived on Indian rupee: SBI

The Indian rupee may experience some volatility in the early days of Donald Trump’s presidency, but it is likely to stabilise soon after, a report by the State Bank of India (SBI) said on Tuesday, terming this short term phenomenon as “Trump Tantrum”.

The report, while citing empirical evidence, also claimed that rupee tends to perform better under Republican presidents as against Democrats.

Rupee breached 86 mark against US Dollar on Monday.

Historical analysis of US presidencies, dating back to the Nixon era, reveals that the rupee tends to perform more stably during Republican administrations compared to Democratic ones.

However, the current volatility does not mirror the intensity of the “Taper Tantrum” era, reinforcing the view that the “Trump Tantrum” for the rupee will be a transient event, with the currency adjusting after the initial disruption, the report said.

“Empirical evidence suggest that the Trump Tantrum for INR will be a short-term phenomenon, and the 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...,” the report said.

“Glancing back at the US presidency through the Nixon years, rupee appears more stable during the Republican regimes as against its performance through the Democratic occupants at the Oval office... However, the volatility in near term is nowhere reminiscent of the heydays of the Taper Tantrum, forcing us to believe that the Trump Tantrum for INR will be a short-term phenomenon and home currency should adjust post the initial shock of early days of presidency,” it added.

The report further said that the Indian rupee, well-supported by the Reserve Bank of India (RBI) against extreme volatilities post-pandemic, is likely to recover beyond current challenges.

As the external noise impacting emerging market (EM) currencies diminishes in the coming months, the rupee is expected to realign with its neutral levels.

The rupee began to weaken in the second half of the year due to capital outflows.

Additionally, the election of Donald Trump as US President in November 2024 triggered a global strengthening of the dollar, impacting most currencies.

To date, the rupee has depreciated by approximately 3% against the US dollar, still ranking among the least affected currencies globally.