Global uncertainty weighs on financial conditions

• Crisil’s Financial Conditions Index (FCI) ¹ remained steady at -0.5 in February 2025, same as in January. However, the index remained in the negative, implying financial conditions were tighter than the long-term average (measured since April 2010). But the gauge remains in the comfort zone - one standard deviation from the long-term average
• Tightness in systemic liquidity, continual foreign portfolio investor outflows and weakness in the rupee against the US dollar have put pressure on financial conditions in the March quarter so far. The FCI has averaged -0.5 in the quarter so far (January-February average), compared with 0.4 in the December quarter of 2024²
• Trade-led uncertainty and the impact on the global economy caused nervousness and foreign investors withdrew funds from Indian markets in February, leading to a depreciation in the rupee even as the dollar index weakened
• Deficit in domestic liquidity, albeit a touch lower than that in the previous month, led to rigidity in key money market rates, hurting the FCI
• Along with the rate cut in February, the RBI has also proactively been infusing liquidity in the system to ensure the transmission of rate cuts