In a conference call with market participants, officials of Reserve Bank of India (RBI) clarified several issues on the proposed auction of Inflation Indexed Bonds (IIBs), which is scheduled on June 4.
One of the remarkable information that the officials shares is that the central bank may use Consumer Price Index (CPI) as a benchmark for these bonds once the CPI stabilises.
It may be noted that there is a wide gap between Wholesale Price Index (WPI)-based inflation (for April it is 4.9 per cent) and CPI-based inflation (which stood at 9.4 per cent). For the time being WPI would be used as a reference index for these bonds.
Further, RBI clarified that these bonds are eligible for maintaining the Statutory Liquidity Ratio (SLR) requirement by banks.
In case the bonds become illiquid there will be a theoretical price at the end of the day for these bonds, officials said. IIB will be part of government borrowing programme every year it will be decided every year when the market borrowing of the government is decided, said RBI officials.
The coupon on these IIBs will be paid every half year.
The RBI will also release an FAQ on these bonds soon to provide more details on these bonds.
The participating in these bonds will be through constituents' subsidiary general ledger (CSGL) for institutional investors and through demat account for retail investors.