The cut will widen the difference between interest rates in the US and India, and the capital flow may increase, he told reporters attending the World Economic Forum here.

India needs to moderate capital inflows and the Reserve Bank of India will continue to take measures to address this issue, Mr Chidambaram said adding we have taken and will take some measures to moderate the capital inflows.” “We have to moderate some capital inflows without hurting the flow of capital that stimulates the economy. The RBI has taken measures and I am sure will continue to take measures,” he added.

Curbing inflow

He, however, did not elaborate on the measures that New Delhi would initiate to curb inflow of foreign funds. Last year, market regulator Securities & Exchange Board of India had done away with derivative instruments like participatory notes to check fund flow in equities.

Even before the rate cut in US, Mr Chidambaram had said on January 17 that any drastic rate cut would have consequences like greater capital flow and faster appreciation of rupee. He had also said that a possible recession in the US was itself not a cause for concern as “our exports to the US are significant, but not so significant that we will be gravely affected.”

To a question, Mr Chidambaram ruled out setting up a Sovereign Wealth Fund — on the lines of government’s overseas investment arm in Singapore — saying India does not have a fiscal surplus to take up such exercises.