India Bans All Gold Coin Imports, Increases Capital Controls
Not satisfied with raising import tariffs on gold and putting in place jarring new FX flow capital controls, it seems the war on a weakening Rupee continues. We previously discussed the unintended consequence of such actions - including the rise of the gold smuggler - but the latest total ban on the importation of gold coins and medallions is edging India closer and closer to the Argentinian edge of Cristina Fernandez totalitarianism (after the initial ban on sales in June). In an effort to "moderate outflows" of Rupee, the Indian central bank slashed the amount of money families can send out of the country per year to $75k (from $200k) and limited overseas investment to 100% of net worth (from 400%). "We will leave no stone unturned" to control the current account deficit and stabilize the rupee, the finance minister warned; which of course removes any hope that monetary easing to revive growth will occur anytime soon.
Since the Fed began discussing Taper - the Rupee has weakened almost 15% (3 months)...
On Gold's import ban (via RBI),
Import of Gold by Nominated Banks /Agencies/Entities
1. Attention of Authorised Persons is drawn to the Reserve Bank’s A.P. (DIR Series) Circular No. 15 dated July 22, 2013 on the captioned subject. As per these instructions, certain restrictions were imposed on the import of various forms of gold by nominated banks/nominated agencies/ premier or star trading houses/SEZ units/EoUs which have been permitted to import gold for use in the domestic sector.
2. Government of India and the Reserve Bank of India have been receiving several requests for clarifications on the operational aspects of the scheme of imports put in place in terms of the above circular. There have also been representations to change certain aspects of the scheme. Taking into account all these representations and in consultation with the Government of India, it has been decided to issue the following clarifications/modifications in supersession of all the earlier instructions:
a) Import of gold in the form of coins and medallions is now prohibited.
On Capital Controls (Via France24),
India slapped new controls Wednesday on foreign exchange outflows as it struggled to narrow a record current account deficit and arrest the fall of the rupee.
The central bank announced that Indian firms can only invest 100 percent of their net worth abroad, down from an earlier 400 percent.
Resident Indians now can only send out of the country $75,000 each year -- down from $200,000 annually, the bank said on its website, and the money cannot be used to buy property.
"The present set of measures is aimed at moderating outflows," said the Reserve Bank of India.
The capital controls were announced as India's woes were underscored by data showing inflation spurted to a five-month high in July as the weak rupee drove up import costs.
The Wholesale Price Index, India's main cost-of-living benchmark, accelerated to 5.79 percent from a year earlier, far outstripping market forecasts of a five percent jump.
The inflation resurgence will delay even further interest rate cuts needed to boost the economy, which has been growing at five percent -- its lowest pace in a decade -- economists said.
The central bank "has to cater to both currency and inflation risks", which means monetary easing to kickstart growth "is off the table for now", said HSBC economist Leif Eskesen.
Politically sensitive food prices climbed in July by 9.74 percent while the cost of onions -- a staple in every Indian diet -- soared by 145 percent on an annual basis.
The Congress-led government has been desperate to tame inflation, especially of food, and revive the economy, fearing a voter backlash in elections due by May 2014.
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