Domestic financial conditions were tighter in September relative to the previous month, CRISIL’s Financial Conditions Index (FCI) shows
Reducing domestic systemic liquidity exerted pressure on domestic interest rates in September. The global environment was unsupportive as well with a sharp rise in crude oil prices and United States (US) Treasury yields spurring Foreign Portfolio Investor (FPI) outflows. However, India’s inclusion in the JP Morgan Global Bond Index, and easing domestic inflation were positive cues for investor sentiment
Markets may not see easing from monetary policy this year as the Reserve Bank of India (RBI) remains committed to aligning inflation to the 4% target. While we expect the RBI to keep the policy rates unchanged this fiscal, the central bank may use liquidity tools to keep the rates consistent with its stance of withdrawal of accommodation
The global environment remains a source of volatility. Crude oil prices face risks from geopolitical tensions even as slowing global demand should work towards cooling prices. The spectre of market accidents looms in major economies that see higher interest rates for a longer period, thereby inducing sporadic episodes of volatility
