Inflation-indexed bonds exclusively for retail investors would be issued in the second half of this financial year, according to the Reserve Bank.

These bonds could turn out to be ‘a great catalyst’ for infrastructure funding, it said in its annual report for 2012-13.

NEW BENCHMARK

They would provide a benchmark for the private sector and banks for raising long-term resources through inflation-linked instruments.

It is hoped that the quest for buying gold for purposes of hedging would too come down and help balance of payments of the country.

The bonds have emerged as a critical instrument for market borrowing by governments across the developed and emerging market economies.

The regulator recalled that the Union Budget 2013-14 had proposed to introduce instruments that will protect savings — especially those of the poor and middle classes — from inflation.

The bonds were designed based on past experience, feedback from market participants and learning from international experiences. They offer inherent protection to both interest and principal repayments.

The annual report said that yields on treasury bills had showed a declining trend till the middle of the quarter ending June.

But they began to harden subsequent to the US Fed’s response in May. Yields on Treasury Bills had gone up significantly following the liquidity tightening measures.

Separately, the report said that the Government had started the year 2012-13 with a surplus cash balance of Rs 74,200 crore, but soon took recourse to ways and means allowances due to expenditure commitments.

This was repeated on 12 occasions subsequently before recording a positive balance from September 15, 2012 till March 31, 2013.

>vinson.kurian@thehindu.co.in

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