The RBI has an estimated 550 tonnes of gold in its reserves. So instead of importing gold to meet the needs of citizens for the rest of the year, the RBI can sell the gold it is holding in its reserves to citizens. With the rupees raised, it can do an even better job of suppressing interest rates by buying government bonds. Even more attractive is the fact that there is no change in its balance-sheet, as it will be substituting one asset class with another. And going by Chidambaram’s advice, the RBI is substituting a dumb non-productive metal with a government bond that would help the government do whatever it wants to do.
Posted on: Fri, 21 Jun 2013 05:38:17 +0000
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