Amid hardening Inflation, Reserve Bank of India (RBI) signalled Banks or some of the financial institutions to sense out the possible demands of inflation linked government bonds.
Inflation Linked Government security, serves as a hedge when real returns from fixed deposits and bonds declines sharply in the investment market. it draws attention and having potential to attract large institutional investors as well as retail clients towards this as an most sought choice.
From september 2013 RBI shifted its focus from WPI to CPI to target inflation under the regime of Raghuram Rajan. Due to this, Most institutional investores also shifted their focus from inflation linked bonds which were at that time linked to wholesale price index or WPI.
If RBI eventually decides to revisit the subject, this time the papers have to be linked to the CPI, or a combination of CPI and WPI-a harmonised index as used in markets like Europe. There would be demand for such bonds from life insurance companies, which are facing demand for guaranteed return products and queries from policyholders in the face of rising inflation.