Bank stocks gain on rate cut hopes, SBI sees 25 bps rate cut in Sept

Banking stocks gained on Thursday as record low retail inflation stoked rate cut hopes in the upcoming monetary policy review in late September.

Share price of public sector banks such as State Bank of India (SBI), Bank of Baroda and Punjab National Bank were up over 2 per cent in the early trade. Private lenders ICICI Bank, Federal Bank, Axis Bank and HDFC Bank also gained over 1 per cent.

The BSE Bankex was trading 1.25 per cent higher at 20,968.71. On the similar lines, Bank Nifty, NSE’s sub index for bank stocks, was also trading 1.22 per cent up at 18,280.10.

CPI hits record low of 3.78 per cent in July.

Soumya Kanti Ghosh, chief economic adviser and GM, Economic Research Department, SBI, said “We expect the August CPI numbers to be sub 3.5 per cent. We now expect the Reserve Bank of India to go for a 25 basis points (bps) repo rate cut in September policy.”

Devendra Kumar Pant, chief economist, India Ratings and Research, said, “Retail inflation at 3.78 per cent in July 2015 was much below the expectation and was mainly due to sharp fall in food inflation. It is contradictory to daily price data released by the government. July vegetable prices has declined by nearly 8 per cent. This will have a favourable impact on bond pricing and increase in probability of monetary easing.”

The BSE Bankex plunged over 5 per cent in the past four trading sessions till August 12.