The Centre is understood to be planning an inflation-linked savings scheme for senior citizens as part of its common minimum programme.

According to sources, the proposal is at a preliminary stage. The modalities, however, are being worked out in consultation with the Reserve Bank of India. While the instrument will be in the form of a deposit scheme, it will provide a floor to the common man to save in interest rates against rising inflation.

The scheme, to be made operational through banks and post offices, will carry a spread over inflation rate. This scheme will be over and above the existing senior citizen scheme which is offered in the form of five-year taxable bonds at 9 per cent.

To cope with rising inflation, the government recently agreed to raise the interest rate of employees provident fund from 8.5 per cent to 9.5 per cent for a year.

However, the inflation rate, which crossed 8 per cent mid-year, has been moderating and is expected to soften further to a range of 6-6.5 per cent by this fiscal end.

While most of the push for inflation rate was on the supply shock of oil prices, growing money supply on account of rising capital inflows also contributed to the inflationary pressure.

The Reserve Bank of India, earlier contemplated floating index-linked government bonds as part of its borrowing programme in the last credit policy.

The inflation-indexed bonds were issued for the first time in 1997. The instrument, however, did not find favour in the market owing to complexities in calculation of coupon and principal.