India cbank tells investors to buy inflation-linked bonds instead of gold

MUMBAI Fri Dec 7, 2012 6:35am EST

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MUMBAI Dec 7 (Reuters) - India's central bank on Friday urged investors to buy less physical gold as a hedge against rising prices and instead invest in financial products like inflation-linked bonds, as it continues attempts to curb high imports of the metal.

India, the world's biggest gold buyer, has been trying to curb the inflow of gold since late last year by hiking taxes on imports twice.

In October, the Reserve Bank of India told banks not to finance purchase of gold in any form other than for working capital finance.

Deepak Mohanty, executive director of the Reserve Bank of India, said high gold imports were weighing on the country's current account deficit and suggested investors shift their investments to bonds that provide a hedge against inflation.

"Inflation-indexed bonds could also be another option to offer investors inflation-linked returns and detract them from gold investments," Mohanty said in a speech released on Friday.

India's physical gold demand has taken a hit this year, due to a weak rupee and higher import taxes. But industry officials expect demand to pick up next year due to more auspicious days for weddings and prospects of a stronger rupee.

The country's current account deficit is expected to reach a record high at around 4.9 percent of GDP in the September quarter after narrowing to 3.9 percent in the June-quarter. It hit 4.5 percent in the April-March period. (Reporting by Neha Dasgupta, additional reporting by Siddesh Mayenkar; Editing by Sanjeev Miglani)

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