Indian banks breathe a sigh of relief
NEW DELHI: Banks were relieved to see that inflation data released Tuesday for the month of November delivered no nasty surprises.
The wholesale price index of inflation rose 7.48% in November from the same period a year earlier, slowing down from October's provisional 8.58% growth. A Dow Jones poll of 17 economists had forecast that inflation would grow at 7.5% in November.
With inflation coming in line with estimates, chances that the Reserve Bank of India will increase policy rates in its Thursday review have become rather slim. The news cheered investors. The Bombay Stock Exchange Banking Index turned positive when the inflation data was released at 0600 GMT and by mid-day, it was up 0.4%. Shares of the State Bank of India were up 0.9% at 2,770.9 rupees ($61.58). HDFC Bank gained 0.6% to 2253.05 rupees. The 30-stock benchmark index, or Sensex, which had been choppy in trade so far, now is trading up 0.5%.
The biggest nemesis of India's central bank remains containing inflation. The Reserve Bank of India is likely to continue to sound vigilant on inflation even though it is expected to pause its rate tightening moves at its policy review Thursday, said Anubhuti Sahay, an economist at Standard Chartered Bank. Banks have enough on their plate without having to worry about an increase in policy rates, a move expected to make funds more expensive. Their biggest problem is sluggish deposit growth and the accompanying shortage in liquidity. According to the central bank, credit growth stood at 22.7% on Nov. 19 from a year earlier, while deposit growth was muted at 15.8%. Many expect that the increase in lending rates which is currently underway will help banks offset the deposit cost increase. -PB News
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