The Reserve Bank study I cited earlier suggests that for 100 basis point increase in real interest rate, investment rate may decline by 50 basis points and real GDP growth may moderate by 20 basis points.
As indeed the real interest rate has moderated in the post-crisis period, it should not have had a large negative impact on investment, but for significant deterioration in the prospects of return on investment driven by non-monetary factors. Decline in marginal efficiency of capital In this context, let me turn to the investment decision at the firm level.