Bonding with consumer prices

The Reserve Bank of India’s plan to launch inflation-indexed bonds (IIB) linked to the consumer price index (CPI) by end-December is in line with the increased policy focus on retail inflation under the new Governor Raghuram Rajan. The current 10-year IIBs offer returns over inflation, based on the wholesale price index (WPI). Given that WPI inflation, at 7 per cent in October, is ruling significantly below the corresponding CPI rate of 10.1 per cent, the IIBs are unattractive for retail investors. 

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