India’s M3 money supply fell from 9.9% to 9.3% as of December 8. This decline may affect various aspects of the economy, such as inflation and interest rates, signaling less liquidity overall. This information comes from FXStreet, a source for financial analysis and insights. FXStreet encourages thorough research before making any financial moves, as the information provided carries some risks and uncertainties.

Drop in Money Supply

The recent decline in India’s M3 money supply growth to 9.3% indicates tighter liquidity in the financial system. With less money circulating, economic growth could slow down. Traders should revise their strategies for the first quarter of 2026 to reflect this slowdown. This contraction in money supply likely stems from ongoing inflation. The November 2025 Consumer Price Index (CPI) showed an inflation rate of 5.8%, well above the Reserve Bank of India’s target. The RBI maintained its key repo rate at 6.5% during its last meeting of 2025, showing its commitment to control inflation. As a result, any expectations for a rate cut in early 2026 might be premature. For those trading equity derivatives, this situation suggests caution regarding Indian indices like the Nifty 50. With tight liquidity and high interest rates, borrowing costs for companies rise, potentially impacting stock prices. This may be a good time to consider strategies that profit from sideways or downward market movements, such as selling out-of-the-money call options.

Impact on Currency Markets

In currency markets, higher interest rates usually support the Indian Rupee. However, the slowdown in money supply suggests weaker economic growth ahead, which may limit the Rupee’s strength against the US dollar. Options traders could consider strategies that anticipate the USD/INR pair will stay stable in the coming weeks. We’ve seen this pattern before in late 2023, where a similar slowdown in money supply growth led to market consolidation. This historical trend indicates that the start of 2026 may see lower volatility and range-bound trading instead of strong directional movements. Now is a crucial time to reassess investment in high-growth assets. Create your live VT Markets account and start trading now.

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