New Delhi [India]: The “Trump Tantrum,” a term referring to the impact of Donald Trump’s presidency on the Indian rupee (INR), is expected to be a short-term phenomenon, according to a report by the State Bank of India (SBI).
The report suggests that while the rupee may experience initial volatility during the early days of Trump’s presidency, it is likely to stabilize soon after, aided by historical trends and current economic conditions.
Historical Trends in Rupee Performance
The SBI report highlights that, contrary to market perceptions, the Indian rupee has historically performed better under Republican administrations compared to Democratic ones.
“Empirical evidence suggests that Trump Tantrum for INR will be a short-term phenomenon, and the rupee should adjust post the initial shock of early days of presidency,” the report stated.
Looking at past U.S. presidencies since the Nixon era, the rupee has exhibited relative stability during Republican tenures. This pattern offers optimism that the rupee’s current challenges may be temporary.
Current Volatility and Causes
The rupee has depreciated by approximately 3% against the U.S. dollar since Donald Trump’s presidential victory in November 2024. The depreciation has been attributed to:
- Capital Outflows: A trend that began in the second half of 2024.
- Dollar Strengthening: Triggered by expectations of Trump’s economic policies, which have bolstered the U.S. dollar globally.
Despite the depreciation, the rupee’s performance remains among the most stable when compared to other global currencies.
“Till date, the rupee has depreciated by ~3% against the US dollar, still in the lowest echelon when compared with other countries,” the report added.
Comparisons with Past Shocks
The report points out that the current volatility does not match the severity of the “Taper Tantrum” of 2013, which saw sharp capital outflows from emerging markets due to changes in U.S. monetary policy.
In contrast, during the first half of 2024, capital inflows—driven by the inclusion of Indian bonds in global indices—helped stabilize the rupee.
Outlook for the Indian Rupee
The SBI report predicts that the rupee will adapt to the initial shock of the Trump presidency and stabilize in the coming months, easing concerns of prolonged instability.
It emphasized the resilience of the domestic foreign exchange market, supported by structural factors and continued investor confidence in India’s growth story.
Conclusion
The “Trump Tantrum” may cause short-term fluctuations, but the rupee is poised to regain stability, underpinned by favorable historical trends and steady market fundamentals.