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The Reserve Bank of India is worried by the rapidly rising housing and gold prices, out-running the inflation rate.
Over the last two years, housing prices have climbed at 16-25 per cent, while gold has risen at even faster a rate of 14-40 per cent.
In its Annual Report for 2011-12 , the RBI says: “These two markets (housing and gold) have not only provided effective inflation hedges, but also enabled savers earn good real returns amidst high inflation.”
Headline wholesale price index-based inflation, which remained above 9 per cent during April-November 2011, moderated to 6.9 per cent by end-March 2012.
Sustained Monitoring
The RBI said it will continue to monitor the asset prices ahead from a macro-prudential angle. According to economists, the aim of macro-prudential regulation is to mitigate systemic risks.
The central bank observed that though credit to housing and commercial real-estate has slowed down, a close vigil is still necessary as housing price inflation has not moderated.
Despite the hardening of mortgage rates, housing prices continue to remain firm at the aggregate national level.
The higher real rate of return on gold vis-à-vis alternative investments such as bank deposits and the stock market seems to have diverted funds into the precious metal, the RBI said. Further, various schemes offered by banks to promote gold as an investment avenue for individuals have pushed up gold demand.
“Since such investments in gold do not contribute to capital formation, they are likely to have implications for overall investment and economic growth,” the report said.
Equity market
While housing and gold investment have given handsome returns, the BSE Sensex and the S&P CNX Nifty, the two benchmark equity indices, declined by 10.5 per cent and 9.2 per cent, respectively, during 2011-12.
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