RBI retains lending rates, allows higher loans against jewellery
The Reserve Bank of India (RBI) on Thursday retained its key short-term lending rates, but maintained its growth oriented accomodative stance.
Accordingly, the Monetary Policy Committee of the central bank maintained the repo rate or short-term lending rate for commercial banks, at 4 per cent. Likewise, the reverse repo rate stands unchanged at 3.35 per cent.
The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts. Similarly, the marginal standing facility (MSF) rate and the 'Bank Rate' remain unchanged at 4.25 per cent.
"The MPC sifted through domestic and global conditions and evaluated their unfolding impact on overall outlook for India and the world," RBI Governor Shaktikanta Das said.
"At the end of its deliberations, the MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent and continue with the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward."
It was expected that the Reserve Bank's MPC might hold rates as recent data showed that retail inflation has been at an elevated level during June.
The retail or consumer price index stood at 6.09 per cent in June. The urban CPI stood at 5.91 per cent and rural at 6.20 per cent. As per the data, retail inflation level has reached the upper limit of the medium-term CPI inflation target of 4 per cent. The target is set within a band of +/- 2 per cent.
The Reserve Bank of India on Thursday added additional shine to gold ornaments and jewellery by allowing banks to give loans up to 90 per cent of the value of such items pledged by borrowers.
At present, loans sanctioned by banks against pledge of gold ornaments and jewellery is up to 75 per cent of the value of such items.
The additional loan against jewellery is expected to mitigate the economic impact of the Covid-19 pandemic on households, entrepreneurs and small businesses and help them tide over their temporary liquidity mismatches.
"With a view to further mitigate the economic impact of the Covid-19 pandemic on households, entrepreneurs and small businesses, it has been decided to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent," the RBI said in its circular sent to all commercial banks.
The enhanced LTV ratio will be applicable up to March 31, 2021. Accordingly, fresh gold loans sanctioned on and after April 1, 2021 shall attract LTV ratio of 75 per cent.