Inflation-indexed bonds to be launched soon, says RBI

The Reserve Bank today said it would soon launch inflation-indexed bonds (IIBs) that would seek to wean away people from buying gold and provide them with an effective hedge against inflation, following Finance Minister P Chidambaram in Budget announcing the launch of such bonds.
"This will be done next fiscal...We will have our cash and debt management meeting towards the end of this financial year and hopefully, from the first or second month of the next fiscal, we will launch inflation-indexed bonds," Deputy Governor HR Khan told reporters at a customary post-Budget press conference here.
The central bank, for some time, has been planning to introduce IIBs to wean away investors from gold, who were investing in the yellow metal as a hedge against inflation.

The Finance Minister in the Budget speech today said, "in consultation with RBI, I propose to introduce inflation-indexed bonds or certificates."
Another Deputy Governor Urjit Patel said "the IIBs would increase choice for savers and the instrument will be particularly attractive for risk-averse savers, who will get assured real returns. IIBs are good hedging instruments against inflation.
"It should encourage household savings to shy away from gold, that is largely unproductive for the economy. This will also help in addressing Current Account Deficit(CAD) risk in the economy as high gold import in recent years had contributed significantly to the widening of CAD," Patel said.

IIBs signal a credible commitment of the government for lowering inflation, he added.
Meanwhile, referring to the conducting of open market operations (OMOs) with regard to the government borrowing programme, Khan said, "as far as OMOs are concerned, we do keep deficit condition in the market (in mind) not so much the borrowing requirement of the government (to conduct OMOs).