The Reserve Bank of India is likely to slash the cash reserve ratio (the portion of deposits banks have to keep with the central bank as cash) by at least 50 points and also reduce the statutory liquidity ratio (the portion of deposits banks have to invest in government securities). The possibility of a cut in the signal repo rate (the rate at which the RBI lends to banks) has also gained currency within the government in the last couple of days.Finance Minister P Chidambaram and RBI Governor D Subbarao, who met Prime Minister Manmohan Singh and Planning Commission Deputy Chairman Montek Singh Ahluwalia this evening, discussed these measures for over an hour. After an earlier meeting with the Finance Minister, Subbarao said everything was under control and that he would now seek the PM’s advice. While an announcement on the second round of measures to boost liquidity within the banking system and to the corporate sector is likely soon, it is not certain if the RBI will cut the repo rate immediately. Chidambaram has already promised that more liquidity will be injected within the next 10-12 days. The expert group appointed by him under Finance Secretary Arun Ramanathan is also scheduled to meet tomorrow in Mumbai to finalise its suggestions for boosting liquidity.The RBI also initiated measures to help mutual funds tide over their redemption pressures on debt funds by opening a special 15-day repo auction window allowing banks to on-lend exclusively to mutual funds. It eased the guidelines relating to certificate of deposits by letting MFs seek loans against these or even surrender them to banks before maturity. The special auction, open to banks specifically for lending on to funds, saw only Rs 3,500 crore being taken up against Rs 20,000 crore on offer. Market circles said this is because of the short notice for the auction and the recovery in the stock markets in the last two days. Despite the 150 basis point cut in CRR last week that released Rs 60,000 crore, liquidity continues to remain tight with huge injections by the Reserve Bank of India through the repo window during the last two days. Banks borrow from the RBI at a fixed rate of 9 per cent in an auction. On Monday, the RBI lent about Rs 70,000 crore and today banks again borrowed Rs 62,800 crore, indicating that the demand for funds continued to be high.According to sources in the government, consensus was slowly being built about the need for an interest rate cut and a further cut in the SLR, from 24 per cent now. Both Ahluwalia and Suresh Tendulkar, Chairman of the PM’s Economic Advisory Council, have said a small cut in the repo rate will help business sentiment and bolster growth.RBI sources said a SLR cut will help banks in that it will free up more money for lending. Average holding of banks in SLR instruments is 26 per cent now, said a source in RBI. “If deposits rise at a rapid rate — which is likely given the 11 per cent interest rates offered by banks — a cut in SLR will free up significant resources for banks,” he said.Finance Ministry sources said other measures to liberalise foreign capital inflows were also being discussed. These included relaxing the external commercial borrowing norms and letting all companies — not just infrastructure firms — to tap the window for loans up to $ 500 million. The ceiling on the interest rate offered by banks on non-resident accounts too may go up by 100 basis points, they said.