Banking stocks on a free fall
Banking sector shares dwindled further extending recent heavy losses as investors were uncertain about what action the Reserve Bank of India would take to calm inflationary pressures in the economy.The BSE Bankex was down 2.93% at 6,827.07. Canara Bank (down 7.66% at Rs 184.95), HDFC Bank (down 4.96% at Rs 1125), Kotak Mahindra Bank (down 4.03% at Rs 610.60), Axis Bank (down 2.75% at Rs 684.75), State Bank of India (down 0.64% at Rs 1284.95) and ICICI Bank (down 2.95% at Rs 727.90), tumbled.
If inflation remains high, the Reserve Bank of India (RBI) would be forced to hike repo rate – a move that could choke overall growth of the economy. However, a section of the market is of the view that the RBI may only use the reserve requirement route to tame inflation, fearing any hike in rates would further hurt growth already seen moderating to a still strong 8%-8.5% this fiscal year from 9% in 2007/08.
To rein in inflation, in its monetary policy review for 2008-09 on 29 April 2008, the RBI raised cash reserve ratio (CRR) by 25 basis points to 8.25% to suck out excess liquidity in the banking system.
The RBI has kept the main short-term lending rate unchanged at a six-year high of 7.75% for more than 14 months, but has often said the limited pass-through of global oil prices posed a huge risk.
It has been tightening cash supply, by raising the cash reserve ratio or the level of deposits that banks must set aside, to slow down credit growth and calm inflation. The next monetary policy review of RBI is on 29 July 2008.
*To get the password for buy calls, please subscribe to this blog. You will receive the password in next email to you*If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment