The Reserve Bank of India has advised banks not to encourage customers to buy gold, the country’s finance minister said on Thursday, as part of efforts to ease pressure on the growing current account deficit.
The move came one day after Finance Minister P. Chidambaram raised gold import duty to try to lower demand for the precious metal.
“I think the RBI has advised banks that they should not be selling gold coins,” Chidambaram said at a banking conference in the financial city of Mumbai.
“Banks have a role to play in dampening the enthusiasm for gold… I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold,” he said.
Gold purchases are one of the biggest contributors to India’s current account deficit — the broadest measure of trade — which widened to just under five percent from 4.2 percent the previous year as imports outpaced exports.
India has long been the world’s biggest buyer of gold with purchases strongest during the religious festival and wedding seasons.
Many Indians — especially in rural areas where there are few banks — buy gold in the form of jewellery, bars and coins as a hedge against inflation.
On Wednesday, the government hiked the import duty on gold to eight percent from an earlier six percent, to discourage rising gold imports.
Gold imports into India jumped to 162 tonnes in May, twice the customary amount, after a slide in global prices.
“How can we finance these gold imports? Therefore both the RBI and government have no option but to take strong measures” to curb imports, Chidambaram said.
India tells banks not to encourage clients to buy gold
