Finance Minister P Chidambaram said New Delhi will respond to a hefty cut in the US interest rates to avert the resultant surge in foreign funds inflow.
DAVOS: Five days ahead of the review of India's monetary policy, Finance Minister P Chidambaram on Thursday said New Delhi will respond to a hefty cut in the US interest rates to avert the resultant surge in foreign funds inflow.
"We will respond (to the rate cut in US) through appropriate fiscal and monetary measures," he said at the World Economic Forum here.
The Reserve Bank of India is due to review its monetary policy stance on January 29. The scheduled quarterly review comes on the heels of a surprise 75 basis points cut in interest rates by the US Federal Reserve on Tuesday.
The US rate cut was part of efforts to stimulate consumption to keep the world's largest economy from slipping into a recession - fears of which had led to a meltdown in the global equity markets.
"We are concerned that it (US Fed rate cut) would lead to high flow of capital to India. But government is not in favour of putting curbs on capital... we have taken, will take some measures to moderate the capital flow," Chidambaram said.
He said despite fears of global recession, the Indian economy is set to grow in the range of 8.5 per cent to nine per cent. However, high interest rates may have an impact on the growth trajectory.
"Our interest rates are set in order to contain inflation, but it (high interest rate) is a dampener to growth," he added.
"Fiscal measures would have to be announced in the budget and monetary measures have to be taken by the Reserve Bank," said Chidambaram, who had earlier asked public sector banks back home to lower interest rates to spur consumption.
The finance minister will be presenting the Budget for 2008-09 in February end, in which he may address the concerns arising from excessive capital flows.
He, however, declined to specify what these fiscal and monetary measures would be.
The finance minister was quick to clarify that moderating funds inflow did not mean that the government intended to put curbs on capital flow.
The rate cut, which has widened the difference between interest rates in the US and India, would trigger increased capital flows, besides lead to faster appreciation of rupee.
The rupee has risen over 15 per cent vis-a-vis the greenback since October 2006, affecting Indian exports.
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