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The IMF, way back in 2009 had sold gold to the tune of 200 tons to RBI. At that point in time, it represented around half of the trade volumes of IMF's total sales that year at 403.3 metric tons.

21 Aug 2013

NEW DELHI (Commodity Online): Given the crunch situation in US Dollar, media reports suggest that India is considering a plan to lease out 200 tons of gold that it bought in 2009 from the IMF.

“Indian Finance Ministry officials have said that they are thinking of leasing out 200 tonnes of gold that the RBI had bought in 2009. This is set to lift the rupee psychologically, while also ensuring increase in gold supply in the market,” a Business Line report said. Gold will be leased in the international markets as per the report. 

The IMF, way back in 2009 had sold gold to the tune of 200 tons to RBI. At that point in time, it represented around half of the trade volumes of IMF's total sales that year at 403.3 metric tons. This gold never came to the country as it was a book transfer only. 

"Talking about the leasing arrangement, a Ministry official said that since gold was the most liquid of assets, it can be readily leased, and returned by the lessee to the lessor any time. Further, a lease transaction means the RBI’s gold holding will not come down even as it unlocks the asset’s value," The Business Line report said.

Yesterday, Indian Rupee plunged below the crucial and psychological 64 mark against US Dollar in the initial hour of the trade.

"I will not be surprised if Rupee moves into 70 levels against US Dollar," said Martin Patrick an economist from South India.

The reason behind the plunge in Rupee is attributed to Dollar flight as various Financial Institutions sell Rupee and moves into now-attractive US markets. With the tapering of Quantitative Easing measures widely predicted, the flight would be further incentivised.

The consequences of this Rupee plunge are many as far as Indians are concerned.

"Firstly, it would make imports costlier. Secondly it would usher in inflation leading to further tightening of rates by Reserve Bank of India. This not only affects the confidence, but also the industrial production of industries. Further, India would also see an accelerated movement down the recessionary path," Martin noted.

"The problem gets aggravated as 44% of India's total debt, which are short-term in nature is about to mature,”

India currently has $280 billion in forex reserves, which could meet 6 months of imports.

(Gold;Image courtesy of Stuart Miles/ www.FreeDigitalPhotos.net)


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