Banking shares trade firm post RBI policy

Nifty PSU Bank index was up 2%, while Nifty Bank up 1% as compared to 0.57% rise in Nifty 50 index at 11:39 AM.

Banking shares were trading firm after the Reserve Bank of India (RBI) kept key rates unchanged, in line with analysts’ expectations, at its second bi-monthly monetary policy meet on Tuesday.

State Bank of India (SBI), Bank of India, ICICI Bank, Yes Bank, Bank of Baroda, Canara Bank, Federal Bank and Bank of India were up between 1% and 3% on the National Stock Exchange (NSE).

At 11:39 AM, Nifty PSU Bank index was up 2%, while Nifty Bank up 1% as compared to 0.57% rise in the benchmark Nifty 50 index.

The central bank retained the repo or the repurchase rate at 6.50% on the back of higher food inflation and amid expectations of a rate action by the US Federal Reserve. . Cash Reserve Ratio (CRR) has also been kept unchanged at 4%. One basis point is one hundredth of a percentage point.

In its bi-monthly monetary policy statement of April 2016, the Reserve Bank stated that it would watch macroeconomic and financial developments in the months ahead with a view to responding as space opens up. Incoming data since then show a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices.

A strong monsoon, continued astute food management, as well as steady expansion in supply capacity, especially in services, could help offset these upward pressures. Given the uncertainties, the Reserve Bank will stay on hold, but the stance of monetary policy remains accommodative. The Reserve Bank will monitor macroeconomic and financial developments for any further scope for policy action, RBI said in a second bi-monthly monetary policy statement, 2016-17.

More monetary transmission to support the revival of growth continues to be critical. The government’s reform measures on small savings rates combined with the Reserve Bank’s refinements in the liquidity management framework should help the transmission of past policy rate reductions into lending rates of banks. The Reserve Bank will shortly review the implementation of the Marginal Cost Lending Rate framework by banks. Timely capital infusions into constrained public sector banks will also aid credit flow, it added.