Crisil’s Financial Conditions Index (FCI) shows domestic financial conditions were a tad easier in July relative to the previous month. The index value was 1.0 in July compared with June’s 0.9. A higher index value indicates easier financial conditions, and vice versa.

“The stable environment across segments is helping financial conditions. The Reserve Bank of India’s (RBI) pause on rate action capped the rise in money and debt market rates. Moreover, equities are strong and less volatile, supported by robust foreign portfolio investment (FPI) to stocks. These inflows also kept the rupee stable,” Crisil said in a report shared exclusively with businessline.

Softening rates

Softening short-term rates: Key money market rates eased in July, with the interbank call money rate falling 5 basis points (bps) month-on-month (m-o-m), 91-day Treasury Bill (T-Bill) yield 3 bps, and 6-month commercial paper (CP) 8 bps m-o-m. Higher surplus liquidity drove the easing. The increase in banking liquidity in July was reflected in the RBI absorbing more under the liquidity adjustment facility, at 0.8 per cent of net demand and time liabilities (NDTL) in July versus 0.6 per cent in June. The ongoing return of ₹2,000-denomination notes, rising bank deposit growth, and FPI inflows contributed to the liquidity.

FPI inflows were strong at $5.8 billion (net) in July. Though lower than $6.8 billion in the previous month, they were higher than $0.2 billion in July last year. While inflows to the debt market slowed ($0.5 billion vs $1.1 billion), they were stable in equities ($5.7 billion each in June and July).

Bank credit growth moderated to 14.7 per cent in July from 16 per cent in the previous month but remained stronger than 13.4 per cent in July 2022.

RBI brings I-CRR to align surplus liquidity with its monetary stance.