CRISIL’s Financial Conditions Index tightens in May, remains in comfort zone

Domestic financial conditions tightened in May, driven by both domestic and external factors, CRISIL’s Financial Conditions Index (FCI) — a summary indicator combining key parameters across equity, money, debt, and foreign exchange markets with policy and lending conditions — shows.

Financial conditions in the month were the tightest in two years, though still in the comfort zone within 1 standard deviation of the long-term average.

The FCI turned negative, reaching the lowest level since June 2020. A negative value indicates financial conditions were tighter than the long-term average since April 2010.

The index reading reflects the impact of the Reserve Bank of India’s (RBI) rate hike in May that tightened liquidity in the economy and of strong foreign capital outflows as a reaction to external developments.

Domestic financial conditions hardened quicker with the progressive tightening of monetary policy by the RBI and US Federal Reserve. Surging crude oil price because of geopolitical tensions is also adversely impacting India’s external position.