Oct. 16 (Bloomberg) -- India joined Brazil and Russia in injecting funds into commercial banks to tackle the global credit crunch without risking interest rate-cuts that may fan inflation.

The Reserve Bank of India yesterday cut its cash reserve ratio to 6.5 percent from 7.5 percent to ease the worst cash crisis in the economy since 2000. Russia lowered its reserve requirement for the second time in a month, while Brazil reduced the measure Oct. 13 for the fourth time in three weeks.

Only China among the so-called BRIC economies has cut interest rates after the nation's inflation rate almost halved since April. Prices are still at elevated levels in India, Russia and Brazil, and the decline in their currencies this year may stoke inflation from higher import costs.

``There are a number of countries that haven't cut rates and the common feature for all of them is that their domestic inflation numbers are still quite high,'' said Subir Gokarn, Asia-Pacific chief economist at Standard & Poor's. ``That is really what is holding back the Reserve Bank of India.''

Brazil's real has slumped 30 percent from a nine-year high on Aug. 1 and India's rupee fell to a record low this month as investors spooked by the global credit crisis have sold emerging market assets. Stocks tumbled in all three markets on concern a U.S. recession will depress corporate earnings worldwide and deepen financial turmoil.

``It's unacceptable that we will pay for the irresponsibility of speculators that transformed the world into a gigantic casino and at the same time they give us lessons on how we should govern our countries,'' Brazilian President Luiz Inacio Lula da Silva said in New Delhi yesterday. ``We are the victims of a financial crisis generated by the rich countries.''

Stocks, Rupee

India's Sensitive index fell as much as 6 percent to 10,238.52, extending its decline for this year to a record 49 percent. Ten-year bond yields declined to 7.7 percent from 7.91 percent yesterday, while the rupee, Asia's second-worst performer this year, dropped as much 1.1 percent to 49.05 a dollar before trading at 48.95 at 9:45 a.m. local time.

Brazil's inflation rate will end this year at 6.20 percent, according to a weekly central bank survey of economists on Oct. 13, more than the 6.14 percent forecast last week. The forecast for Brazil's benchmark interest rate remained at 14.75 percent by year end, according to the survey.

Brazilian companies may report as much as $28 billion of write-offs because of currency bets gone wrong, according to Paulo Vieira da Cunha, a hedge fund manager and former Brazilian central bank deputy governor.

On Oct. 13, Brazil's central bank eased reserve requirements to inject as much as 100 billion reais ($45.5 billion) of cash into the financial system and unfreeze lending. The three earlier cuts had freed up 60 billion reais.

Pumping Cash

Inflation in Russia may exceed an annual 12 percent by the end of December, more than the government's 11.8 percent forecast, as the country pumps more cash into the economy, according to Arkady Dvorkovich, an adviser to President Dmitry Medvedev.

Inflation, which was an annual 15 percent in September, could be spurred after the ruble declined 13 percent in the past three months against the dollar.

Russia's central bank yesterday cut the reserve requirements to 0.5 percent for all liabilities. Earlier, Russia's State Duma on Oct. 10 approved a banking liquidity package worth about $86 billion, which Medvedev signed on Oct. 13.

Slowing Inflation

Slowing inflation in China enabled the People's Bank of China on Oct. 8 to cut interest rates for the second time in three weeks. It reduced the key one-year lending rate to 6.93 percent from 7.20 percent, on the same day the Federal Reserve, European Central Bank and three other banks lowered rates in an unprecedented coordinated action.

China also reduced the proportion of deposits banks must set aside as reserves by 0.5 percentage point. Consumer prices in China rose 4.9 percent in August from a year earlier, less than the 8.5 percent gain in April, as food costs cooled.

India has injected one trillion rupees ($21 billion) through reserve requirement cuts since Oct. 11 as call money rates surged and mutual funds sought government help to meet the highest redemptions by investors this year. The central bank's moves to inject liquidity helped push down India's call rates to 7 percent today from an 18-month high of 16 percent on Oct. 10.

Finance Minister Palaniappan Chidambaram also increased interest rates on deposits by non-resident Indians and doubled the overseas investment limit in corporate bonds to $6 billion to shore up the rupee from near a record low.

``This is a step in the right direction as liquidity is much required in the economy,'' said Y. M. Deosthalee, chief financial officer at Larsen & Toubro Ltd., India's biggest engineering company. ``The call money rates had risen sharply because banks were cash-strapped.''

Free Up Lending

These measures may free up bank lending, giving central bank Governor Duvvuri Subbarao room to resist a cut in interest rates. Inflation is still double the central bank's target even after slowing to a three-month low of 11.80 percent last month.

Besides, the 19.2 percent drop in the rupee against the dollar since January, the biggest decline since 1991, may make imports costlier and negate the drop in global prices of oil, wheat and other commodities, analysts say.

The International Monetary Fund and Goldman Sachs Group Inc. cut their growth forecast for India this month because of the repercussions of the global financial crisis on the $1.2 trillion economy, Asia's third largest.

``Inflation continues to be a big worry,'' said Dharmakirti Joshi, an economist at Mumbai-based rating company Crisil Ltd. ``Maintaining a status quo on interest rates would be an appropriate response as inflation continues to be much above the Reserve Bank's expectation.''

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

Last Updated: October 16, 2008 01:42 EDT