Inflation-linked bonds planned

The Finance Ministry will issue inflation-linked bonds that could provide a better tool for institutional and retail investors to hedge against inflation, Pongpanu Svetarundra, director-general of the Public Debt Management Office, said yesterday.

These bonds would be part of a state-bond plan for the next fiscal year.

Pongpanu said the government and state-owned enterprises were expected to issue bonds worth Bt500 billion in the next fiscal year, which starts this October and ends September next year.

He did not reveal the value of inflation-linked bonds but said the Bank of Thailand had agreed with the ministry in principle on the move.

This would be the first time local government inflation-linked bonds were available for institutional investors such as the Government Pension Fund, Security Fund, Provident Funds and retail investors, Pongpanu said.

These bonds would offer a floating rate and could be linked to the consumer price index. For example, if the index

is 7.6 per cent, the return should be

that amount plus 1 per cent or 8.6 per cent.

This could help investors manage risks stemming from high inflation, he said.

The government needs to raise funds to finance a budget deficit worth Bt250 billion. It also needs to refinance public debt worth Bt200 billion.

To finance mega-investment projects, government and state enterprises need to issue bonds worth Bt50 billion, he said.

The bonds would have a maturity of two, five, 10, 15, 20 and 30 years. Five and 10-year bonds will be for larger amounts of investments, Pongpanu said.

As interest rates appear to be rising, the government has to issue two-year bonds. At the same time, it wants to issue long-term bonds to finance mega-projects, he said. He said more details would be available after the ministry consults with market participants in August.