RBI Worried About Rising Housing & Gold Prices

The Reserve Bank of India (RBI) is worried the rapid rise in housing and gold prices, out-running the inflation rate. Over the last two years, housing prices have grown at 16-25% whereas gold prices have risen even faster at a rate of 14-40%. However, with housing and gold prices surpassing inflation rate, RBI stresses the need to contain the attendant risks.

RBI in its annual report 2011-12, said that, these two markets not only provided effective inflation hedges, but also helped savers to earn good returns against high inflation.

As the central bank observed, though credit to housing and commercial real-estate has slowed, there is a need for close observance as housing price inflation has not moderated. Also, the higher rate of return on gold vis-a-vis alternative investments like bank deposits and stock markets seems to have diverted the funds into the precious metal. And, various schemes to promote gold as an investment by banks also pushed up gold demand.

The RBI in its report said that, such investments in gold do not contribute to capital formation but it will have implications on overall investment and economic growth.