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The recent slowdown in the economy is on account of policy uncertainty and sluggish domestic demand, and a cut in repo rate is unlikely to spur investments, according to CRISIL Research.
Investments have slowed in times of lower interest rates. What matters more is the business environment, or the expected return on investments, it added.
The chorus on an interest rate cut to revive the economy has got louder with the recent climbdown in inflation. To be sure, the monetary policy tool of cutting the interest rate is conventionally used to energise a flagging economy. But this does not hold true under all circumstances, CRISIL report said.
RBI has kept Repo rate, rate at which RBI provides short-term liquidity to banks, at 8 per cent.
With inflation easing in recent months, there has been a growing clamour for a rate cut to boost the economy. Retail inflation or Consumer Price Index (CPI)-based inflation eased to 6.46 per cent in September, lowest since January 2012, from 7.73 per cent in August.
