The Reserve Bank has announced it will launch inflation-linked bonds every month, starting 4th June, 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 on Wednesday.

The first tranche of the IIBs 2013-14 for Rs 1,000-2,000 crore will be issued on 4th June, 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 last Tuesday 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 incentives household sector 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 its putting pressure on Current Account Deficit (CAD), which widened to historic high of 6.7 percent in third quarter of 2012-13.

Gold and silver imports last month shot up 138 percent, year-on-year, to USD 7.5 billion.

Announcement of the bonds to discourage investments in gold is the second major move by RBI in the last three days. On Monday, it had placed restrictions on banks to import gold.

Giving details of the for first series of IIBs, RBI said while the coupon rate (interest rate) will remain fixed, the principal amount invested in the bonds will be linked to inflation based on Wholesale Price Index (WPI).

“Thus these bonds provide inflation protection to both principal and coupon payment. At maturity, the adjusted principal or the face value, whichever is higher, will be paid,” RBI said.

RBI said that for appropriate price discovery and market development it is necessary to issue comparable instruments through auctions to institutional investors such as pension, insurance and mutual funds.

“This will create demand for IIBs and help in making them tradable in the secondary market. It is therefore proposed to issue initial series for all categories of investors including institutional investors and, later, another series, exclusively for retail investors,” it said.

The first series, RBI said, will help in determining the coupon rate for the bonds through auction.

“This will help in benchmarking IIBs. Based on the experience in the initial issuances, second series of IIBs for the retail investors is proposed to be issued around October,” the central bank said.

Terms of issuance of IIBs for retail investors would be announced in due course, RBI added.

To target greater retail participation for the first series, RBI said it has been decided to enhance the non- competitive segment for retail and mid-segment investors to 20 percent from the present level of 5 percent applicable to auction of usual GoI securities.

According to various experts, amid high inflation and few investment options, a large portion of household savings has been going into gold which has led to spurt in its imports, putting stress on CAD.