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Below the Quote on RBI MPC by Himani Shah, Co-Fund Manager, Alchemy Capital Management

"The CRR (Cash Reserve Ratio) cut of 50 basis points was expected and has come through, releasing about INR 1 lakh crore liquidity into the system. This is anticipated to have a positive earnings impact of 1-2% for large banks and even higher for smaller banks, in our view. This is because CRR earns no interest for banks, as it is deposited with the RBI as a regulatory requirement. Cutting the CRR would enable banks to use the released liquidity for more interest-earning deposits. More importantly, it would benefit banks with high LDR (Loan-to-Deposit Ratio) and also large banks with high growth.

The GDP growth estimate for FY25 lowered significantly from 7.2% to 6.6%, while the inflation estimates for FY25 has been raised to 4.8% from 4.5% (RBI MPC announcement, Dec'24).  A prudent move by the RBI, holding rates steady for now as we see higher inflation. As and when the inflation outlook abates, likely by January -February 2025, we could see interest rates coming down."

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