Gold import curbs still possible after inconclusive policy meeting between RBI, FinMin

The Finance Ministry and the Reserve Bank of India (RBI) will reconvene in a day or two after failing to come to a decision on Thursday over whether to restrict gold imports after inbound shipments surged in the past two months, pressuring the country's trade deficit.

October shipments to the country jumped to about 150 tonnes from less less than 25 tonnes in the previous year and 143 tonnes in September, a finance ministry official said on Thursday.

Officials from the central bank and Finance Ministry met on Thursday to discuss the policy but no decision was taken, a senior ministry official told Reuters after the meeting. They will resume their discussions in a day or two.

Measures under discussion would restrict imports by private trading firms, which started importing gold around the middle of 2014 after being barred from doing so from July 2013, two other sources with knowledge of the matter said earlier.

All the sources declined to be named because of the sensitivity of the matter.

The October jump follows a 450 per cent increase in September imports to $3.75 billion, weighing on the country's trade deficit and prompting suggestions that the government could again step in to curb imports of the yellow metal.

Any new restrictions could raise local premiums to the global benchmark and hurt consumer demand. Reduced domestic gold buying would also pressure global prices, already smarting from weakening demand in China.

Struggling with a high current account deficit, the government in 2013 raised the import duty on gold to a record 10 per cent and made it mandatory to export a fifth of all bullion imports, crimping supply, boosting local premiums and encouraging smuggling.

Domestic gold imports are typically strong in the second half of the year as banks and retailers stock up for major festivals such as Dhanteras and Diwali, when it is considered auspicious to buy the precious metal.

Domestic demand for gold jumped by more than a third to 225.1 tonnes in the July-September quarter, boosted by jewellery demand, the World Gold Council said in its report.

"Given the recent seasonality, it would be advisable to wait for another month or two of gold import data before re-imposing any restrictions," analysts of research firm Nomura said in a note.

"There's been some increase in underlying gold demand as well, but we do not expect this to be sustained," they added.

(Reuters)