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CRISIL Market Intelligence and Analytics in its latest research report has said that financial conditions have tightened the economy with liquidity going into a deeper deficit putting upward pressure on short-term rates. It also said that foreign portfolio investors turned net sellers further aggravating the tight liquidity conditions.

It stated with tightening of the liquidity, the transmission of interest rates improved across lending and deposit rates in January. However, the cumulative rise in most deposit and lending rates remained lower than the 250 basis points of repo rate increase by the Reserve Bank of India (RBI) since May 2022.

This incomplete transmission of monetary policy prompted the Reserve Bank of India to keep the interest rates unchanged. According to the report, the deficit in domestic systemic liquidity almost doubled in January compared with December. This has led to a net infusion of Rs 2.07 lakh crore into the system, which is one per cent of net demand and time liabilities (NDTL) by the RBI. It said that liquidity has been in deficit in the economy since September 2023. Besides, it said due to a crunch in liquidity, money market rates are under pressure with the call money rate hovering above 6.75 per cent.