Reserve Bank of India (RBI) considers to launch inflation-indexed bonds (IIBs) in order to attract investors who buy gold for protection against inflation.
RBI Governor D Subbarao informed reporters that the central bank tries to redesign IIBs after its introduction some years ago failed to attract investors.
The RBI is considering whether to peg the bond to WPI or CPI. Subbarao also spoke about the issues related to timing the launch as the government may want to do it during falling inflation, while customers would want it during rising inflation.
Referring to possibility of disruption of G-Secs market owing to launch of IIBs, Subbarao said, “One question which hunts us all the time is whether this will disrupt the G-Sec market. “Because it is a wedge between the yield of IIBs and that of the G-Secs. However, if we educate investors they will see that this is pegged to inflation over a cycle and not to a particular point of time. Then, people will understand and invest in this”, he said.
The governor also said the government and the RBI are working on various proposals to reduce the gold import. The RBI will also consider the proposal to allow banks to buyback gold, he said.
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