Tightening liquidity conditions loom large over foreign flows to India

Indices tracking US financial conditions predict a sharp drop in the availability of easy money.

Rising interest rates globally are reversing India’s availability of capital after record inflows of foreign portfolio investments.

The US Federal Reserve raised interest rates by 0.5 per cent on Wednesday, the biggest single-day increase since 2000. Indices tracking US liquidity conditions have been reacting to expectations of tightening. The Bloomberg United States Financial Conditions Index has been in negative territory for the last ten days in a row.

A negative value suggests tighter conditions compared to the pre-crisis norms. A positive value would indicate easier availability of capital. Similarly, the Goldman Sachs US financial conditions index has also seen