CRISIL Financial Conditions Index entered the ‘tighter zone’ in March

CRISIL’s Financial Conditions Index (FCI) dropped below the ‘zero’ mark in March, indicating deterioration in domestic financial conditions.

The index provides a comprehensive monthly update on India’s financial conditions by combining 15 key parameters across equity, debt, money and forex markets, along with policy and lending conditions. It is constructed to have an average value of zero and a standard deviation of one over the period starting from 2010. Positive values of the index are associated with easier-than-average financial conditions, while negative values are associated with tighter-than-average financial conditions.

In March, the financial conditions were not only tighter than in the previous month but also relatively tight compared with average conditions in the past decade.

So far, the Reserve Bank of India’s (RBI’s) accommodative policy has been the key tailwind for domestic financial conditions. However, external headwinds, which were building up in anticipation of the US Federal Reserve’s (Fed’s) policy tightening, have gained momentum amid the Russia-Ukraine war.