Mumbai: India will respond with suitable measures to a hefty reduction in the US interest rates to ward off an indirect impact of the US financial crisis on its economy, finance minister P Chidambaram said.

Speaking to reporters at the annual meeting of the World Economic Forum in Davos, Switzerland, he said the country needs to moderate capital inflows and the Reserve Bank of India will continue to take measures to address this issue.

"We are concerned that it would lead to high flow of capital to India. But government is not in favour of putting curbs on capital. We will take some measures to moderate the capital flow," Chidambaram said days ahead of a planned review of monetary policy by the Reserve Bank of India.

The RBI is due to review its monetary policy stance on January 29. The review comes on the heels of an unscheduled 75 basis points cut in interest rates by the US Federal Reserve on Tuesday.

"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 said.

A flood of capital flows into the Indian stock market saw the rupee rise by over 12 per cent in 2007 alone.

He said Indian economy did not suffer any first order effect. But the government and the Reserve Bank anticipate 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.

He said while the Indian economy is expected to grow in the range of 8.5-9.0 per cent, high interest rates may impact the growth trajectory.