By Rajendra Jadhav
MUMBAI (Reuters) - India's gold consumption in the months of October to December could fall by around a quarter from a year ago as inflation depresses rural demand, the World Gold Council (WGC) said on Tuesday.
The lower purchases in the world's second-biggest gold consumer could weigh on prices, which are trading near their lowest level in more than two-years.
Falling demand for gold imports could also help to narrow India's trade deficit and support the rupee.
Higher inflation is likely to curb rural demand, which was starting to recover from disruption caused by last year's COVID-19-led lockdowns, Somasundaram PR, regional chief executive officer of WGC's Indian operations, told Reuters.
India's annual inflation rate in September remained above 7% and beyond the central bank's tolerance band, raising the chances the central bank will raise rates at the next policy meeting.
Two-thirds of India's gold demand usually comes from rural areas, where jewellery is a traditional store of wealth.
In the December quarter, India's gold demand could fall to around 250 tonnes from 343.9 tonnes a year ago, Somasundaram said.
The drop could bring down India's total gold consumption in 2022 to around 750 tonnes, down 6% from last year's 797.3 tonnes, he said.
India's demand for gold rose 14% from a year ago to 191.7 tonnes in the quarter through September as festivals drove jewellery sales, the WGC said in a report published on Tuesday.
Gold smuggling, which declined in the last two years because of a lack of international flights, has gained momentum since New Delhi in July raised import duty on the precious metal.
"With the total tax of 18.5%, there is lot more propensity to smuggle," Somasundaram said.
(Reporting by Rajendra Jadhav; editing by Barbara Lewis)