India Considering Interest Rate, Reserve Ratio Cuts, Times Says

By Anil Varma

Oct. 12 (Bloomberg) -- India may cut interest rates and further reduce the cash-reserve ratio of banks to increase the availability of cash in the nation's financial system, the Economic Times reported, without saying where it got the information.

The central bank may suspend its practice of absorbing excess funds via money-market auctions from banks that have surplus cash, the newspaper said. The South Asian nation may also ban short-selling, the practice of selling a borrowed stock to profit from a decline in prices, in the equity market to curb volatility in prices, the report said.

In addition, policy makers may encourage banks to increase lending to top-rated companies to ease the availability of credit to industry, the newspaper said. Local lenders are increasingly wary of giving loans amid the global credit crisis, threatening to hamper the nation's industrial growth, it said.

The Reserve Bank of India made on Oct. 10 the steepest cut since 2001 in the amount of cash lenders must hold in reserve. It lowered the cash reserve ratio to 7.5 percent from 9 percent to inject 600 billion rupees ($12.5 billion) into the financial system.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.