Reserve Bank mulls linking inflation bonds to CPI
21 May 2013 12:16 AM GMT
The Reserve Bank of India on Monday said that the soon-to-be-launched inflation index bonds could also be linked to consumer price index in the future.
'The new instruments to be issued down the line when perhaps CPI index stabilises, we may move over (to consumer price inflation). But currently, the choice is for WPI inflation for the current series which is going to be issued (on 4 June),' Reserve Bank executive director R Gandhi said.
Gandhi, who oversees the internal debt management department, was speaking during a specially-arranged conference call with market participants to clear doubts surrounding inflation index bonds (IIBs), the first tranche of which is to be issued on 4 June.
The plan came to fructify after Finance Minister P Chidmabaram in the FY14 Budget announced that RBI would launch inflation indexed bonds to help public hedge themselves against price increases at a time real interest rates are still negative, thus crimping their savings.IIBs are pursuant to the Budget proposal to 'introduce instruments that will protect savings of poor and middle classes from inflation and incentivise household sector to save in financial instruments rather than buy gold’.
Both the government as well as the RBI are concerned over the rising gold imports as its putting pressure on current account deficit (CAD), which widened to historic high of 6.7 per cent in third quarter of 2012-13.
There is a strong wedge between the consumer and wholesale price-based inflation indices. Experts are of the view that linking them to the CPI will entice retail investors more.
He said the RBI has increased the non-competitive portion of the first trance, which would be of retail investors' liking to 20 per cent from the earlier 5 per cent. One will have to contact a primary dealer and preferably have a demat account to buy these instruments.
The RBI is also mulling over introducing a special series of bonds for retail investors after October 2013, he said.
The RBI, which is targeting to issue up to Rs 15,000 crore through the issuance of IIBs this fiscal, will think of additional ways of marketing the retail centric issue, Gandhi said.
'The new instruments to be issued down the line when perhaps CPI index stabilises, we may move over (to consumer price inflation). But currently, the choice is for WPI inflation for the current series which is going to be issued (on 4 June),' Reserve Bank executive director R Gandhi said.
Gandhi, who oversees the internal debt management department, was speaking during a specially-arranged conference call with market participants to clear doubts surrounding inflation index bonds (IIBs), the first tranche of which is to be issued on 4 June.
The plan came to fructify after Finance Minister P Chidmabaram in the FY14 Budget announced that RBI would launch inflation indexed bonds to help public hedge themselves against price increases at a time real interest rates are still negative, thus crimping their savings.IIBs are pursuant to the Budget proposal to 'introduce instruments that will protect savings of poor and middle classes from inflation and incentivise household sector to save in financial instruments rather than buy gold’.
Both the government as well as the RBI are concerned over the rising gold imports as its putting pressure on current account deficit (CAD), which widened to historic high of 6.7 per cent in third quarter of 2012-13.
There is a strong wedge between the consumer and wholesale price-based inflation indices. Experts are of the view that linking them to the CPI will entice retail investors more.
He said the RBI has increased the non-competitive portion of the first trance, which would be of retail investors' liking to 20 per cent from the earlier 5 per cent. One will have to contact a primary dealer and preferably have a demat account to buy these instruments.
The RBI is also mulling over introducing a special series of bonds for retail investors after October 2013, he said.
The RBI, which is targeting to issue up to Rs 15,000 crore through the issuance of IIBs this fiscal, will think of additional ways of marketing the retail centric issue, Gandhi said.
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