Empowering MSMEs with News & Insights

Crisil FCI Index Alludes To Liquidity Strain In January

Updated: Feb 20, 2024 03:54:50pm

Crisil FCI Index Alludes To Liquidity Strain In January

New Delhi, Feb 20 (KNN) In January, India experienced a notable surge in the deficit of its domestic systemic liquidity compared to December, prompting the Reserve Bank of India (RBI) to infuse a significant sum of Rs 2.07 lakh crore to address the shortfall.

CRISIL's Financial Conditions Index (FCI) underscores a tightening of India's overall financial conditions during January in contrast to December. The FCI dipped from 0.7 to 0.5, indicating a palpable shift in the economic landscape, as reported by BL.

“Liquidity plunged into deeper deficit, exerting upward pressure on short-term rates. Financial conditions were also affected by foreign portfolio investors (FPIs) transitioning into net sellers,” Crisil remarked in a report.

Despite the tightening liquidity, the transmission of interest rate hikes witnessed improvement across lending and deposit rates in January. However, the cumulative increase in these rates remains below the RBI's 250 basis point hikes since May 2022.

Interestingly, the rise in lending and deposit rates has had minimal impact on overall bank credit growth thus far, the report added.

The incomplete transmission of monetary policy compelled the RBI to maintain unchanged interest rates and persist with its withdrawal of accommodation stance.

Crisil anticipates proactive measures from the central bank in liquidity management and regulation to curb excessive credit growth, foreseeing a potential moderation in gross domestic product (GDP) growth by the next fiscal year. The outlook suggests the RBI might consider rate cuts starting from June 2024.

The deepening deficit in domestic systemic liquidity, which nearly doubled in January compared to December, prompted the RBI to infuse Rs 2.07 lakh crore (1.0 per cent of NDTL) through the liquidity adjustment facility (LAF).

This contrasts with the infusion of Rs 1.14 lakh crore (0.5 per cent of NDTL) in December. The deficit in liquidity has persisted since September, with the gap widening steadily.

According to the Crisil report, money market rates faced considerable strain due to the liquidity crunch. The call money rate has consistently exceeded 6.75 per cent, the marginal standing facility, and the upper limit of the RBI's policy corridor for the past three months, indicating a persistent liquidity crunch in the banking system.

Additionally, other money market rates experienced a notable uptick in January, with the six-month commercial paper (CP) and certificate of deposit (CD) rates rising sharply by 18 bps and 10 bps, respectively. The CP rate averaged 8.2 per cent, while the CD rate averaged 7.8 per cent.

(KNN Bureau)


    Be first to give your comments.


Required fields are marked *