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Can you give me a little bit of color on why you think the RBI has chosen to do this?  I can't imagine them trying to call a bubble, has the number of lenders that are backed by gold grown extremely rapidly?


Besides fact that number of lenders that are lending against gold have grown rapidly, they are largely funded by banks i.e. NBFCs in India are not allowed to raise deposits from customers, they get funded by banks thereby putting the entire banking structure at risk if they were to default.


Besides, India is the largest importer of gold in the world (http://www.forbes.com/sites/greatspeculations/2011/09/20/china-and-india-stoke-global-gold-demand/) The govt recently raised duty on import of gold to curb demand as it is hurting our current account deficit. The govt rather see FX reserves being used to purchases oil, coal and nat gas as opposed to gold. Not only has the Finance Minister come out and said that the duty will not be reversed when gold traders went on strike but also more or less said that it could be increased if gold imports continue ot hurt our current account deficit.


Perhaps the RBI took notice that when the largest importer of gold doesnt want its populace to keep importing the stuff the price may be affected downwards. Furthermore, I have noticed the RBI is more willing (as compared to the Fed) in tightning lending standards/rates where they see a possibility of a bubble forming.

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India wants to slow purchases of gold, and yet IIRC, China actually encouraged people to buy gold.  Interesting, interesting.....





Zorro - it is not about slowing purchase of gold really - it is about systemic risk from single asset loan providers.  Slowing purchase of gold in India will be the collateral damage.

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