Wednesday, May 15, 2013

Reserve Bank of India Launches Inflation Bonds to Reduce Demand for Gold

The RBI is not fooling around. They've raised the tariff on gold coming into the country, they've pushed for dematerialized gold trading to reduce the need for physical, on Monday they restricted importation to legitimate jewelers and now they are offering a product meant to absorb some of the inflation-linked demand.
From The Hindu Business Line:
RBI to launch inflation bonds to discourage gold imports 
The first tranche of the bonds for Rs. 1,000-2,000 crore will be issued on June 4 
The Reserve Bank of India on Wednesday announced it will launch inflation-linked bonds every month, starting on June 4, to attract household savings of up to Rs. 15,000 crore this fiscal so as to discourage investments in gold.

“RBI, in consultation with Government of India, has decided to launch Inflation Indexed Bonds (IIBs),” the central bank said in statement.

The first tranche of the IIBs-2013-14 for Rs. 1,000-2,000 crore will be issued on June 4, it said, adding that the maturity period of these bonds will be 10 years. The total issue size will be Rs. 12,000-15,000 crore in 2013-14.

After the first tranche, bonds will be issued on the last Tuesdays of every month.

While the first series of the bonds will be open for all class of investors, the second series issue - beginning October - will be reserved exclusively for retail investors. RBI said the bonds are pursuant to the Budget proposal to “introduce instruments that will protect savings of poor and middle classes from inflation and to save in financial instruments rather than buy gold.”

Both the government as well as the RBI are concerned over the rising gold imports as it was putting pressure on Current Account Deficit (CAD), which has widened to historic high of 6.7 per cent in third quarter of 2012-13....MORE
As Indian Central Bank Restricts Gold Imports Spot Falls to a Three Week Low