Q+A - Why is India buying IMF gold?

MUMBAI (Reuters) - The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India (RBI) for $6.7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The deal will increase India's gold holdings to the tenth largest among central banks.

WHY IS RBI BUYING IMF GOLD?

Analysts say one of the reasons why the RBI was buying gold from the IMF was to shore up its gold holdings.

The latest purchase will lift its share of gold holdings from near 4 percent to about 6 percent, much less than most of the developed world but four times China's share.

India's foreign exchange reserves held at the central bank totalled $285.5 billion on Oct. 23, of which gold comprised just over $10 billion. India held 357.8 tonnes of gold reserves as of March 31, 2009, according to the latest data.

India built up its gold reserves to over 20 percent of its foreign reserves in 1994 after a balance of payments crisis in 1991. But the proportion of gold has since fallen significantly as total reserves swelled.

Another reason behind the buying may be India's push for a larger voting share in the IMF.