Bank stocks take surge in inflation in their stride

Five Banking stocks rose between 0.36% to 5.69% at 12:22 IST on BSE despite the latest data showing inflation remainedi at highest level in more than three years.

Punjab National Bank (up 5.69% to Rs 567.65), Bank of India (up 4.32% to Rs 353.65), HDFC Bank (up 2.87% to Rs 1,518.50), State Bank of India (up 1.3% to Rs 1,702.50), and ICICI Bank (up 0.36% to Rs 932) edged higher.

India's wholesale price index rose 7.83% in the 12 months to 3 May 2008 higher than previous week's annual rise of 7.61%, government data showed on Friday. It was the highest since an annual reading of 7.93% on 6 November 2004. The annual inflation rate was 5.74% during the corresponding week of the previous year.

The Reserve Bank of India (RBI) in its annual monetary policy on 29 April 2008 had kept interest rates unchanged. The central bank, however, raised the cash reserve ratio (CRR) by 25 basis points to 8.25% with effect from 24 May 2008. The CRR is the percentage of banks' deposits which they must keep as cash with the central bank. It may be recalled that RBI had earlier in April announced a two-stage rise in CRR to 8%.

The Reserve Bank of India (RBI) had said managing liquidity would continue to receive priority in its policy objectives and warned it would act swiftly to curb any signs of adverse developments in inflation expectations. RBI deputy governor Rakesh Mohan had hinted that the apex bank has sufficient policy measures in the pipeline.

The government also has taken a slew of fiscal measures such as ban on export of cement and non-basmati rice, cut in import duty on some items and imposition of export duty on some steel items to rein in rising prices.