Reserve Bank of India’s stance to keep the policy rate unchanged in the midst of the festive season will give a boost to the jewellery but increasing limits for gold loans from Rs 2 lakh to Rs 4 lakh in respect of urban cooperative banks could lead to a temporary decrease in the supply of gold in the market, said jewellers and analysts.
Mr Colin Shah, MD, Kama Jewelry said “RBI keeping policy rates intact is at par with the industry expectations. This pause amidst the onset of the festive season will give a much-needed boost to consumer buying sentiment, thereby propelling demand. The expansion recorded in urban consumption will further foster velocity in jewellery sales in Indian markets. Additionally, increasing the limit for gold loans from Rs 2 Lakh to Rs 4 Lakh in respect of urban cooperative banks will prove to be beneficial for buyers during the upcoming wedding season. The core inflation trajectory is projected to ease further during the year, resulting in a gradual but steady rise in the purchasing power of the masses. This sentiment towards the yellow metal will further be guided by the inflation trajectory, system liquidity, and movement in the economic activities in the West. Overall, we expect to witness sustainable growth in exports as the journey to the targeted 4% inflation rate unfolds.
However, Jateen Trivedi, VP Research Analyst at LKP Securities said “As more people use gold as collateral for loans, it could lead to a temporary decrease in the supply of gold in the market. This may have a slight upward pressure on gold prices, as reduced supply can, to some extent, support prices. While changes in lending limits for gold loans can have localized effects, they are unlikely to be the primary driver of gold price movements.”
