Financial conditions tighten moderately in January
Domestic financial conditions were slightly tighter in January relative to the previous month, CRISIL’s Financial Conditions Index (FCI) shows. The FCI value printed at -0.3 in January from 0 the previous month. A lower FCI value indicates tighter financial conditions, and vice versa.
Compared with the long-term average, financial conditions remained mildly tight but within the comfort zone. A negative FCI value implies tighter financial conditions than average since 2010, and the value between -1 and 1 suggests the index is within the comfort zone.
Tightening of conditions in January was primarily driven by a fall in equities, as negative news on a large Indian conglomerate shook market sentiment. The sector also saw large outflows by foreign portfolio investors (FPIs) in the month.
However, the rupee remained stable in the month. Domestic monetary and liquidity conditions were also similar as the previous month, which lent stability to the money and debt markets.
Transmission of the Reserve Bank of India’s (RBI’s) rate hikes continued, amid credit growth outpacing deposit collections. Bank deposit rates reached the pre-pandemic 5-year average in January, while lending rates were close to reaching those rates. More hikes are expected in the coming months as transmission is yet to be completed.
Note: CRISIL’s FCI is a monthly tracker that combines 15 key parameters across equity, debt, money and forex markets, along with policy and lending conditions. A higher value indicates easier financial conditions, and vice versa