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Inflation-indexed bonds to be introduced to discourage gold buying

By Religare

Inflation-indexed bonds to be introduced to discourage gold
In a bid to encourage households to save in financial instruments, instead of buying gold, the finance minister P Chidambaram announced the proposal to launch inflation-indexed bonds or inflation-indexed national security certificates.

Chidambaram said it will be done in consultation with the Reserve Bank of India and details of these instruments will be announced in due time.

"The private sector, comprising households and corporates, remains the main contributor to saving. The household sector must be incentivised to save in financial instruments rather, than buy gold," he said.

The move came on the backdrop of rising demand for gold in the country as a hedge against inflation while returns from instruments like fixed deposits turn negative.

Lauding the decision of the FM, experts said that instruments like inflation-index bonds can help the government reduce the import bill.

Analysts said that the bonds will either be linked to WPI or CPI and the coupon rate will set on periodic basis, as it moves in line with inflation.

Read more about: inflation index bonds gold
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