Friday, July 13, 2012

RBI plans financial products to discourage gold demand

The Reserve Bank of India (RBI) is planning to introduce financial products with returns that match the earnings from gold investments.

The move is aimed at discouraging gold imports. This would help reduce the current account gap. A committee has been set up by the central bank to devise alternative investment avenues for retail investors.

In the Financial Stability Report released last month, RBI had expressed concern at banks’ import of gold coins for retail sales, as investment in the yellow metal by households will affect availability of financial sector funds.

“Banks’ import of gold coins for retail sale to households has been a matter of concern. It has risen from just one per cent of total imports by banks in 2009-10 to 3.8 per cent in 2011-12,” RBI said in the Report.

Quoting World Gold Council data, RBI said as much as 23 per cent of all gold imported is for investment purposes in India and said even its use in jewellery at 75 per cent has an investment element for households. Market players said it is difficult to guess the type of financial instruments that RBI will introduce to match the returns on gold investments.

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