Rapid Fire
Financial Conditions Index
- 28 Jul 2025
- 2 min read
The Reserve Bank of India (RBI) has proposed a daily-frequency Financial Conditions Index (FCI) to assess India’s financial market health in real-time to aid policymakers and analysts.
- Objective: The FCI will serve as a composite indicator to measure tight or easy financial conditions relative to historical average since 2012.
- Components: The FCI tracks 20 financial market indicators across money markets, government securities (G-Secs), corporate bonds, equities, and forex markets.
- Positive values of the standardised FCI indicate tighter conditions, while negative values suggest easier financial conditions.
- Trends: During the RBI's sample period, the tightest financial conditions were recorded in July 2013 (taper tantrum, FCI at 2.826) driven by bond and forex market stress, while the easiest conditions occurred in June 2021 (post-Covid, FCI at -2.197) due to the RBI’s liquidity measures.
- A taper tantrum refers to a sudden spike in interest rates, triggered by investors' concerns that a central bank may begin scaling back its bond-buying program (quantitative easing).
- Significance: This initiative highlights India’s commitment to indigenous macro-financial research and real-time policy planning.
| Read More: Role of the Financial Sector in India's Development |
