MUMBAI (Reuters) - The RBI took tougher measures to curb gold imports on Tuesday after buying soared in May and threatened to widen a current account deficit which is already at a record.
Indians, the world's biggest buyers of bullion, swept up 162 tonnes of gold last month - at least twice normal volumes - as they tried to beat the Reserve Bank of India's last move on May 13. The buying spree started in April when global prices slid.
India's average monthly imports this year are now already nearly 104 tonnes, outstripping even the record levels of 2011 and rattling the government, which had hoped that hiking import duty by half to 6 percent in January would curb demand.
Finance Minister P. Chidambaram said on Monday imports would have to be checked and this time, the Reserve Bank acted swiftly to extend its May ban on deposit-based purchases to cover all imports apart from those used to make jewellery for export.
Spot gold fell one percent to $1,397 an ounce after the central bank's announcement as the market worried demand would be hit.
The Bombay Bullion Association said June imports could slide to 30-40 tonnes.
"There will be a shortage of gold ... imports will slow down at the moment, unless there is a sudden downfall (in prices)," said Harmesh Arora, director at the Bombay Bullion Association.
Economists agreed the surge in imports would not last long, linking it to lower prices. As a result, they are not ready to raise estimates for the current account deficit, which hit an all-time high of 6.7 percent of GDP in the December quarter.
Robert Prior-Wandesforde, an economist at Credit Suisse, said slowing inflation and stabilising prices should also help to reduce gold purchases.
"We expect gold demand to remain strong but not as strong as in recent months," he said, adding India's current account deficit is likely to narrow to 3.5 percent of GDP in 2013/14 on improved exports.
Domestic gold prices dropped sharply in April, tracking global trends and undermined further by a stronger rupee. Gold futures on Mumbai's Multi Commodity Exchange hit a year low of 25,720 rupees per 10 grams on April 16.
Prices have partly recovered and the rupee has weakened but domestic gold futures are still trading around 27,000 rupees - roughly equivalent to $1,351 per ounce - as global spot gold prices were quoted around $1,396 per ounce.
In May, the central bank announced its plans for limiting imports early in the month, providing a two-week buying window before it implemented a ban limited then to banks importing to cover purchases by jewellers on payment of a deposit only.
The measures now aim to curb anything other than cash purchases, which could hit hard India's huge number of small, family jewellers who make up about 60 percent of the market. (Reporting by Siddesh Mayenkar in MUMBAI and Rajesh Kumar Singh in NEW DELHI; writing by Jo Winterbottom; editing by James Jukwey)
