CPI bonds to shield investors from inflation

Written by fe Bureau | New Delhi | Updated: Nov 26 2013, 17:57pm hrs
CPI-indexed bonds aimed at giving retail investors a cover against prevailing high inflation and wean people away from purchasing gold will be launched by December-end, according to RBI deputy governor HR Khan.

Guidelines (on CPI bonds) will be out soon...We are likely to launch the first tranche before end of December. We will come out with details. This year it (quantum) should be between R10,000 and R15,000 crore (for wholesale price and consumer price indexed bonds) but the exact amount will be announced. This is part of (the governments) overall borrowing programme, said Khan on the sidelines of an event organised by the National Housing Bank.

In its policy statement last month, RBI had said that inflation-indexed securities for retail investors of 10-year tenor would be linked to the new (combined) consumer price index. Interest would be compounded half-yearly and paid cumulatively at redemption, the statement said. Apart from India, such inflation-indexed bonds are issued in the US, UK, Sweden, France, Italy, Japan and Australia, among others, and all of them link the instrument to consumer-price based inflation.

Meanwhile, Khan also said over $25 billion has been received from the swap facility for Foreign Currency Non Resident (Banks) deposits and banks overseas borrowings. The swap facility was introduced in September as the rupee was threatening to breach 70 to a dollar and had hit a record low of close to 69 in August.

The facility closes on November 30. RBI had clarified recently that banks can get disbursement from multilateral agencies till December 31.

There are some multilateral institutions who have taken some time to sanction the loans and release it. What we have said is that there is a commitment that they will be releasing so we have given time up to December 31 for the banks to take loans under tier-I from international financial institutions, multilateral financial institutions, he said.

The transaction has to be booked before November 30. This is limited only to banks who are on the process of negotiations with international financial institutions. We have issued a circular on this, he said.