A research paper by Reserve Bank of India (RBI) has said that the impact of policy rate hike is more severe on the growth in investment demand and imports rather than the demand expansion in private and government consumptions and exports.    

An interest rate hike has a significant negative impact on the growth of aggregate demand, the RBI working paper series on 'Estimating impacts of monetary policy on aggregate demand in India,' said. However, the maximum impact is borne by growth in investment demand and in imports, said the paper written by Jeevan Kumar Khundrakpam.    

Impact on private consumption growth and exports growth is relatively far more subdued, while there is hardly any cumulative impact on growth of government consumption. Interest rate accounts for a significant percentage of the fluctuation in the growth of all the components of aggregate demand, except government consumption, while exchange rate has very little impact, the paper said.    

RBI had last hiked its interest rates by 25 basis points to 8.50 per cent on October 25, 2011. Since then, the central bank shifted its gear to lower interest rate regime and slashed the repo rate by 50 bps till now. Repo is the rate at which banks borrow money from RBI.