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.