Three major banking stocks declined 1.93% to 3.96% at 12:10 IST on BSE on concerns Reserve Bank might intervene to contain inflation which reached highest level in 13 years.
The wholesale price index rose 11.05% in the 12 months to 7 June 2008, government data released today, 20 June 2008, afternoon showed. The rate was above market expectation of about 10% rise. The reading was the highest in 13 years since 6 May 1995, when it was 11.11%.
ICICI Bank (down 3.96% to Rs 723.45), State Bank of India (down 3% to Rs 1,261), and HDFC Bank (down 1.93% to Rs 1,099) edged lower.
The quarterly monetary policy review of RBI is scheduled on 29 July 2008 but it may take a call much earlier with inflation hitting the roof. Reserve Bank of India had on Wednesday, 11 June 2008, hiked repo rate by 25 basis points to 8% with immediate effect in an effort to contain rising inflation.
The repo rate is the rate at which Reserve Bank of India (RBI) lends money to banks under its liquidity adjustment facility. The repo rate increase was announced after market hours on Wednesday (11 June 2008) and came outside a scheduled policy review. The repo rate is now at its highest since November 2002.
As per reports, State Bank of India may not raise its prime lending rate for one or two months because borrowing costs are already too high. State Bank of India on Saturday, 14 June 2008, in its meeting had decided not to raise its prime-lending rate.
Recently, some of the banks had raised prime lending rates following the hike in repo rate by RBI. Jammu and Kashmir Bank had increased its prime lending rate by 100 basis points to 14% with immediate effect. Yes Bank, had announced a 0.50% hike in its prime lending rate to 16%. Other lenders might follow suit in due course of time.
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