Bank stocks await policy cues

STOCK MARKET WATCH

"With the cash reserve ratio (CRR) already hiked last week, there is only a dim possibility of RBI hiking the repo rate," an analyst said.

On April 18, RBI increased banks' CRR by 50 basis points to 8 per cent, a move seen to dampen the demand to check rising prices.

"With the inflation rate stabilising, as evident from absolute numbers, RBI may not opt for dampening demand by hiking the repo rate. The policy is expected to be hawkish on language, but not on operations," said Saday Sinha, a banking analyst at Kotak Securities.

The repo rate, which is at 7.75 per cent currently, is the rate at which banks borrow from RBI to meet their short-term needs.

India's headline inflation rate rose to 7.33 per cent for the week to April 12 from 7.14 per cent a week ago, much above RBI's targeted rate of 4.5-5 per cent.

The rise in inflation rate is on account of higher prices of primary articles, especially iron ore and other minerals. Analysts feel that since the high rate of inflation is essentially a supply side problem and the government has already taken fiscal measures, RBI may leave key rates unchanged.

If the repo rate is not hiked, banks will then be in a position to reduce their deposit rates to protect margins.

Subdued earnings are expected from some of the major banks that are going to detail their results from Saturday. A moderate credit offtake of less than 22 per cent in the fourth quarter ended March 2008, driven by a lower retail credit demand, is expected to lower banks' interest income.