Inflation indexed bonds in a month: RBI

The central bank is in advanced stages of discussion with the government

The Reserve Bank of India (RBI) today said inflation index bonds, which will hedge investors’ savings against rising prices, are likely to be launched in a month.

“(It will be launched) probably in a month’s time. We are in the advanced stages of discussion with the government,” RBI Deputy Governor HR Khan said on the sidelines of an event organised by CII at the ADB annual meet here.

In Budget 2013-14, Finance Minister P Chidambaram announced inflation indexed bonds or inflation indexed national security certificates to protect savings of the poor and middle class from inflation and offer alternative to investment in non-productive assets like gold.

Khan said retail participation in the bonds, which would be linked to wholesale price index based inflation, would be provided right from the beginning, but at a later point the RBI may provide a separate window or separate sort of instrument only for retail.

“There is something called a non-competitive bidding quota which is 5%. It doesn’t get filled up, we are thinking of increasing this to 10% but we need to finalise this,” he said.

Inflation indexed bonds have been a success in developed markets such as the US, the UK, Canada and New Zealand. In India, the government has tried to experiment with inflation indexed bonds in 1997 and 2004 too, but without much success.

At the seminar Khan also said robust and well-functioning financial market was required to ensure impetus to economic growth. He said RBI would continue to provide adequate liquidity so that production sectors were not starved of much needed funding.

"We stand committed to see that will avoid excess volatility, one area we are trying to do that from the fiscal point of view, from the corporate point of view we have provided a wide range of hedging products and we are encouraging corporate to hedge," he added.

Speaking at the seminar, Economic Affairs Secretary Arvind Mayaram said the government would work towards deepening and broadening the Indian capital market and improving their competitiveness in terms of lower cost of doing business and their completeness by expanding range of instruments offered.