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Don’t buy IMF gold: PMEAC advises RBI

Last Updated: Sunday, December 6, 2009 - 23:46

New Delhi: Amid speculations that RBI may buy
more gold from the IMF, the Prime minister`s economic advisory
panel has said the central bank should wait for some more time
before going for another round of purchases.

"Having bought 200 tonnes of gold, they (RBI) might wait.
I think there is no particular hurry to buy more. At the
moment, I think they have made a substantial increase to the
total quantity of gold they have," Prime Minister`s Economic
Advisory Council (PMEAC) Chairman C Rangarajan said.

When asked if RBI bought gold to shore up the value of
its reserves in the context of falling dollar value,
Rangarajan said, "not necessarily."

The former RBI Governor said the total amount that has
been invested in gold is very small, which does not make a sea
change in relation to its total reserves.

"...they (RBI) might have already shifted in favour of
other currencies, but the significant proportion of total
reserves will still be kept in the dollar," he added.

He said the RBI has readjusted in some way the proportion
of gold in its total reserves because the quantity of gold has
remained constant, while forex reserves had increased.

The 200 tonnes gold buy by RBI constituted only 2.35 percent of its total forex reserves at 284.3 billion dollars at
that point of time and raised the gold reserves with RBI to
557 tonnes.

Rangarajan said, "The foreign exchange reserves of the RBI
have been increasing and therefore the proportion of gold in
the total reserves has been coming down. So, to some extent
they have reversed that by this gold purchase."

When asked how much reserves should RBI maintain in the
form of gold, Rangarajan said," There is no hard and fast
rule, but some proportion of the reserves being maintained in
the form of gold is good."

While the central bank`s Deputy Governor Subir Gokarn
evaded a direct reply, saying he is new in his job, when
questioned about the rationale behind gold purchase.

Clarifying that he is not speaking as the RBI Deputy
Governor, Gokarn said, "On the broader economic perspective,
the supply of gold is extremely skewed and the country that
doesn`t have its own capital supply of gold which is dependent
on trading partners or cross border transactions to get its
supply of gold runs a significant risk by making gold the
basis of its monetary system."

There are speculations that RBI may buy more gold, after
purchasing 200 tonnes in the month of November. RBI officials
remained tight lipped about the purchase.

India had to pledge around 68 tonnes of gold with the
Bank of England and Union Bank of Switzerland in early 1990s
to tide over balance of payments crisis.


First Published: Sunday, December 6, 2009 - 23:46

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