Banking stocks pounded on rate hike fears

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Banking stocks pounded on rate hike fears
Fears of a rate hike, following an ugly inflation data, spooked banking stocks in trade today. ICICI Bank and IndusInd Bank were the worst hit in trade with both the stocks falling three per cent in trade.

PSU Banking stocks also took a whack with notable losers being Canara Bank, IOB, Syndicate Bank, Allahabad Bank and Bank of Baroda.

Banking stocks took a knock in trade today after inflation data which came in on Thursday confirmed worst fears that an interest rate hike was imminent when the RBI hold its policy meet on December 18.

CPI inflation came in at a staggering 11.24 per cent, way above consensus estimates of 10 per cent. RBI Governor Raghuram Rajan has made it clear that inflation management is the top priority of the central bank.

It's almost certain that there would now be a 25 basis points repo rate hike by the RBI to tame inflation. Some argue that we might even see a 50 basis points hike in the repo rate.

A hike in the repo rates means that interest rates in the economy are likely to move higher, as costs for the banking sector increase. While interest on bank deposits may see a rise, there is also likely to be a hike in loan rates, including home loan, personal loans and car loans.

This is likely to push growth rates further down as interest remains at elevated levels. Today's reaction in banking and rate sensitive stocks reflect those concerns.

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