Reports & Indices Current Affairs - 2019
This category comprises Current Affairs 2019-2020 related to various reports and indexes / indices by National and International Bodies and organizations such as World, Bank, World Economic Forum, NITI Aayog and various other educational and research organizations. We also place report highlights of various committees and commissions in this category.
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RBI to launch Inflation Indexed Bonds in June 2013
As stipulated in the Budget 2013-14, the government, in consultation with the RBI, has decided to launch Inflation Indexed Bonds (IIBs) to wean away investors from the yellow metal (Gold) to paper-based savings instruments. This new investment instrument with provide an alternative for those who were in recent times going in for investment in gold as a hedge against inflation.
IIBs with a maturity period of 10 years will be launched each month by RBI with the objective of diverting household savings from gold into these hedged bonds up to Rs.15,000 crore this fiscal.
For appropriate price discovery and market development the IIBs will also be auctioned to institutional investors such as Pension Funds, Insurance, and Mutual Funds as it will create demand for IIBs and help in making them tradable in the secondary market.
What are IIBs?
Inflation-Indexed Bonds or IIBs are are bonds where the principal is indexed to inflation. They are thus designed to cut out the inflation risk of an investment. These bonds will be linked to the inflation index of the country (Wholesale Price Index or WPI) and serve as a better investment option as compared to physical assets like real estate and gold. Higher the inflation, higher the returns.
Why this step?
The step is being taken to de-motivate investments in gold as bulging imports of the yellow metal has been adversely affecting the country’s Current Account Deficit (CAD), which had surged to a historic high of 6.7% in the third quarter of 2012-13. Last month, imports of gold and silver soared by 138% on an annual basis to $ 7.5 billion.
How would IIBs help?
As per RBI, IIBs would help in:
- Boosting domestic savings and reversing the declining savings-to-GDP ratio.
- Providing households and other investors a competitive option against gold and real estate. In the wake of rising inflation last year, there was considerable flow of investments from financial savings to safe-haven assets like gold that resulted into higher imports of the metal. This led to current account deficit or CAD widening to 4.9% of GDP at the end of September 2012.
- Giving investors choice to use IIBs as good hedging instruments against inflation.
How will the Index ratio be determined?
The IR (index ratio) will be computed by dividing reference index for the settlement date by reference index for the issue date, and the final inflation data based on the Wholesale Price Index (WPI) will be used for providing inflation protection. Besides, in case of revision in the base year for WPI series, base splicing method would be used to construct a consistent series for indexation.
Tags: Economy • Fact Box • Insights • RBI
As per government data, the Wholesale Price Index (WPI) in April rose 4.89% which is the lowest since November 2009.
WPI inflation in the manufactured items category decreased to 3.41% in April from 4.07% in March. Also, inflation in food articles category, which has a 14.34% share in the WPI basket, slipped to 6.08%. Inflation in this category was at 8.73% in March. The decline in food inflation was facilitated by a sharp drop in prices of vegetables. Inflation in vegetables stood at (-) 9.05% in April, against (-)0.95% in the previous month.
The retail inflation, as evaluated by Consumer Price Index (CPI), declined to single digit at 9.39% in April after many months, showing a easing trend in inflation.