Financial conditions stabilise, but transmission of rate hikes picks up

• Domestic financial conditions were broadly stable in December 2022 relative to the previous month, CRISIL’s Financial Conditions Index (FCI) shows. The FCI value printed -0.1 in December, same as the previous month. A negative value suggests that financial conditions are marginally tight compared with the long-term average (since 2010), but a mild negative number suggests the index is in the comfort zone.
• Broadly, global cues contributed to easing of financial conditions, while domestic cues lent tightness. Falling international crude oil prices and easing dollar index augured well for Indian debt and equity markets.
• Meanwhile, domestic interest rates continued to rise for the broader economy. Real repo rate turned positive in December for the first time in three years as inflation softened and repo rate rose further. Transmission of the RBI’s rate hikes is still in progress, leading to a steady rise in bank lending and deposit rates. Key bank lending rates reached close to the pre-pandemic 5-year average in December. Credit growth moderated, albeit remained at a decadal high.