Inidian Gold Buying Spree Troubles Reserve Bank

May 13, 2013 at 13:34

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India’s gold and silver imports shot up 138 per cent on year in April as customers took advantage of lower prices, increasing pressure on the current account balance and limiting the space for monetary easing even though inflation slowed in the month.

The surge in gold buying sent the April trade deficit to $17.8 billion, up more than 72 per cent from March, official data showed, because retail customers in the world’s largest gold importer went on a buying spree after a sharp fall in global prices.

The size of the increase came as a shock to the government, which imposed duties on gold imports earlier this year to stem a rising import bill. The attraction of lower prices more than offset the duties.

“The rise in gold imports is surprising. It was not expected,” Commerce Secretary S R Rao told reporters.

The Reserve Bank of India brought into effect on Monday previously announced restrictions on banks importing gold. A trade ministry official told Reuters that the April surge had revived discussion in the government of a further duty hike.

Gold and silver imports surged an annual 138 per cent to $7.5 billion after world prices slumped 17 per cent over a period of two weeks in the month. The timing coincided with traditional peak-buying seasons for some Indian states celebrating festivals.

Silver imports usually account for a very small amount of the combined total, which is dominated by gold.

The RBI flagged a high current account deficit earlier this month as the biggest risk “by far” to Asia’s third-largest economy even as it cut interest rates by a quarter point for the third time since January.

The current account gap widened to a record high 6.7 per cent of GDP in the December quarter, driven by heavy oil and gold imports and lower exports.

The central bank said the deficit and risks of a resurgence of inflationary pressures constrained room for further policy easing.