MUMBAI (June 25, 2013): India's central bank told rural
regional banks on Tuesday they could no longer provide loans against
gold jewellery and coins weighing over 50 grams – the latest move to
discourage gold buying as the government seeks to reduce a record
current account deficit.
Source from (The Sun Daily): http://www.thesundaily.my/news/754457
Published: Jun 28, 2013
Gold imports into India, the world's biggest gold buyer, hit a record
162 tonnes in May as global prices tumbled and buyers stocked up. Rural
communities are particularly hungry for gold as an investment, given a
lack of banking facilities outside towns.
Since May, the government has hiked the import duty on gold to 8%,
and the Reserve Bank of India has introduced constraints that force
Indians to use cash to buy gold, with purchases mostly limited to
jewellery.
Rural areas account for 60% of demand for gold, which is India's second-biggest import cost after crude oil.
The new rule for rural banks had already applied to other banks. The
central bank also asked banks to restrict lending against units of gold
exchange-traded funds (ETFs).
Indians, whose obsession with gold is legendary, present gold as a
gift at weddings and festivals as well as using it as an investment and
as collateral.
Analysts say addressing inflation and low real interest rates would
have more of an impact on the current account deficit than curbs and
duty hikes on gold.
"These measures might be seen as rather self-defeating," Ross Norman, chief executive of bullion broker Sharps Pixley, said.
"It's almost as if the finance ministry is waging war on the gold
sector, which would suggest that they feel they have lost control of the
economy to some extent. In that environment, you would want to own gold
more than ever," he added.
Gold imports have slowed to about US$36 million a day from US$135
million before the curbs, Finance Minister P. Chidambaram said last
week.
The government's battle has won some support from industry. Financial
services company Reliance Capital has halted sales of its gold-backed
funds, and the leading jewellers' body urging members to halt sales of
gold bars and coins.
But with domestic prices already back near levels before the rise in
the duty, concerns are growing that demand could revive, particularly as
a bountiful monsoon starts to raise hopes of increased incomes for
farmers and India's large rural community.
Domestic gold futures, tracking global prices, are trading around
26,735 rupees per 10 grams, not far from the contract low of 25,270
rupees on April 16 which triggered the
demand surge that so rattled the government.
"International prices of gold have fallen sharply. This time around,
the government could be in alert mode to avert the huge demand we saw in
April," said Gnanasekar Thiagarajan, director with Commtrendz Research.
"More measures are possible (in gold) till the rupee gets into a
comfort zone. And apart from gold, no other imported item which is
essential can be targeted as they will lead to further inflationary
pressures," Thiagarajan said.
Asked on Tuesday after the central bank's latest moves if more
measures were expected, Chidambaram said "Let's see." An official of the
central bank could not immediately be reached for a comment. – Reuters
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