Key takeaways
 

• Financial conditions now are tighter than last decade's average, shows CRISIL’s Financial Conditions Index
  
• These conditions are expected to tighten further as central banks continue to raise rates, the Reserve Bank of India (RBI) keeps the pedal on excess liquidity absorption and there is faster transmission of rate hikes to the broader market segments
  
• With the RBI aggressively tightening monetary policy this year, the repo rate has crossed the pre-pandemic level (February 2020), though it is lower than the five-year average before the pandemic. Systemic liquidity has reduced significantly, reaching close to the five-year average before the pandemic
  
• Monetary transmission has picked up across segments. Short-term rates are rising at a faster clip but remain below pre-pandemic average levels. In contrast, medium-term corporate bond yields and government bond yields have crossed those levels.
  
• Bank lending rates remain on the lower side, for now. This, combined with gradual economic recovery, has led to a sustained pick-up in credit growth
  
• The US Federal Reserve’s (Fed) stance to continue with aggressive rate hikes, coupled with other volatile and uncertain global cues, could also keep domestic financial conditions on the edge
  
• Tighter financial conditions may not restrict growth for now, as policy rate hikes act with a lag. But their impact would largely be felt from the last quarter of this fiscal