DAVOS, Jan 24 (NNN-PTI) — Anticipating an indirect impact of the US financial crisis on its economy, India Thursday said it will respond appropriately to a hefty cut in the US interest rates.
“We will respond (to the rate cut in US) through appropriate fiscal and monetary measures,” Finance Minister P Chidambaram told reporters here. The statement comes just days ahead of review of monetary policy by Reserve Bank of India.
The RBI is due to review its monetary policy stance on Jan 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.
Referring to the impact of the US mortgage crisis on Indian economy, he said: “We did not suffer any first order effect. But we anticipate that there will be some second order impact.”
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. — NNN-PTI