Domestic financial conditions eased in July according to the Crisil Financial Conditions Index (FCI) which rose to 0.8 in July from 0.5 previous month.

Net FPIs increased for the third straight month to $5.8 billion in July compared to $5 billion in June, driven by higher inflows in both debt and equity segments. Inflows rose to $2.7 billion from $1.8 billion in the debt segment and to $3.9 billion from $3.2 billion in equity markets.

Systemic liquidity was in surplus in July (vs a deficit in the previous month) due to a boost in government spending and robust FPI inflows. Accordingly, the RBI net absorbed ₹1.03 lakh crore (0.4 per cent of net demand and time liabilities, or NDTL) in July compared to an average net injection of ₹0.55 lakh crore (0.2 per cent of NDTL) in June. The central bank net sold G-secs worth ₹10,105 crore through open market operations •

Excess liquidity in the system pulled down money market rates, Crisil said. The weighted average call money rate (WACR) eased 8 bps averaging 6.51 per cent, about the same as the repo rate. The 6-month commercial paper and certificate of deposit rates eased 5 bps each, while the 91-day treasury bill rate (T-bill) fell 12 bps.

G-sec yields down

Domestic G-sec yields continued their decline. The yield on the 10-year benchmark G-sec was marginally down (3 bps) to 6.97 per cent on average in July from 7 per cent in the previous month. A lower fiscal deficit target for fiscal 2025 in the Union Budget, surplus systemic liquidity, a surge in FPI inflows into debt, and lower US treasury yields helped pull down yields. The decline, however, was capped by the RBI’s open market operation sale

The global environment was broadly conducive as investors geared up for imminent rate cuts by the US Federal Reserve (Fed). Foreign portfolio investor (FPI) inflows rose sharply to debt and equity markets. India’s formal inclusion in the JP Morgan Emerging Markets Bond Index at the end of June also gave a fillip to debt market FPI inflows

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