CRISIL’s Financial Conditions Index (FCI) tightened slightly in April but stayed within the comfort zone. The index value declined to 0.5 in April compared with 0.9 in March but was higher than 0.3 in April last year.

Two global factors affected the Indian markets during the month. One, crude oil prices spiked after geopolitical tensions increased. Two, the markets baked in a delay in rate cuts by the US Federal Reserve (Fed), dimming global investor sentiment. As a result, foreign portfolio investors (FPIs) turned net sellers, which hit the rupee and domestic bond yields.

Domestically, improving liquidity conditions provided relief. But the lagged impact of the Reserve Bank of India’s (RBI) past monetary tightening has been affecting the credit growth with banks seeing a slowdown in credit offtake for the second consecutive month in April. Lending rates are also catching up in segments where transmission of the RBI’s rate hikes had been slower so far in the cycle.

The spectre of higher-for-longer policy on interest rates looms on financial conditions this year. S&P Global does not expect the Fed to cut rates before December, as US inflation stays stubbornly high. This can constrain space for monetary easing by the RBI as well, which will also factor in risks from weather that domestic inflation faces. Geopolitical tensions remain elevated and a risk for crude prices. All these mean little space for significant easing of financial conditions this fiscal, CRISIL said.