India and China may be forced to further restrict bank lending as declining U.S. interest rates prompt investors to pump record cash into the world's two fastest-growing economies.

Reserve Bank of India Governor Yaga Venugopal Reddy, who Tuesday ordered lenders to set aside more deposits for a fourth time in 2007, said inflows from abroad accelerated after the Federal Reserve lowered rates on Sept. 18. Economists expect China to ask banks to hold more deposits as reserves for a ninth time this year, as the Fed prepares to cut rates again today.
The Fed's actions threaten to spur inflation in India and China, where stocks have soared to records as a stampede of foreign money stokes share and property prices. Chinese and Indian shares have added $882 billion since the U.S. reduced rates, almost a third of the $3 trillion gain in their combined market capitalization this year.
“If the U.S. cuts rates, it will have Asia's blood on its hands,” said Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report. “The Fed is pursuing an easy monetary policy that is creating massive bubbles outside the U.S.”
The U.S. Central Bank, which cut its key federal funds rate by 50 basis points last month, may follow up with a further quarter-point reduction today to 4.5 percent to avoid a recession, according to the median forecast of 108 analysts. Raising the Odds
(Source: Bloomberg)