RBI initiates swap of old gold with new one.

The Reserve Bank has undertaken an excercise to swap old gold in its reserves with a new one with a view to standardise the yellow metal stock.

The central bank has asked nominated banks to give quotes for swap with the objective to optimise the management of its reserves.

The nominated banks, including State Bank of India, would import gold on behalf of RBI and subsequently the metal would be swapped.

Under the scheme, RBI would exchange relatively impure gold including some dating back pre-independence era from its Nagpur vault and get the equivalent worth of purer yellow metal.

According to sources, the operation would standardise the gold available with RBI to global standards and the gold acquired would be delivered to its overseas custodian, the Bank of England.

The entire exercises would take place through book entry and without any cash outgo, sources said.

As of June 27, RBI had a gold reserve of worth USD 20.79 billion while total forex reserve USD 315.77 billion.

RBI is likely to offload its old gold onto the local market through nominated banks, a bullion trader said, adding import of gold would come down to that extent.
At the time, this would help in increasing gold supply without putting pressure on current account deficit (CAD), which has come under stress due to rising crude oil prices due to conflict in Iraq.

In order to check rising CAD, the government had raised import duties and RBI imposed curbs on import of gold and also laid down various pre-conditions for inward shipments of the precious metal.

Gold imports declined 72 per cent to USD 2.19 billion in May due to restrictions imposed by the government on inbound shipments of the precious metal to narrow the CAD.

India's CAD, which is the excess of foreign exchange outflows over inflows, touched a historic high of 4.8 per cent of GDP in 2012-13, mainly due to rising imports of petroleum products and gold.

A high CAD puts pressure on the rupee, which in turn makes imports expensive and fuels inflation.

Source : financialexpress.com