Arguing against a rate cut now, the agency's senior director for corporate ratings Deep N Mukherjee, said, "There have been instances of an interest rate cut by the Reserve Bank in the past being followed by a 1.1-5.8 per cent rupee depreciation.

"Around 53 per cent of BSE 500 corporates, which are net importers and account for 70 per cent of balance sheet debt, have been estimated to have historically suffered a 1.3 per cent Ebidta erosion for a 1 per cent rupee depreciation," Mukherjee said.

"Any rate cuts over the next six-nine months could profoundly impact corporates as an increase in interest rate may increase the debt servicing burden of several over-leveraged companies. Conversely, a rate cut need not be considered unequivocally positive, given the possible depreciation in rupee," he went on to argue.

Mukherjee warned that a 25 bps interest rate cut followed by a 2 per cent rupee depreciation could stress 14 per cent of the debt in BSE 500 corporates, excluding banking and financial services, compared with 10 per cent, currently. However, a 50 bps interest rate cut followed by a 5 per cent rupee fall could stress 21 per cent debt of these corporates.

He also noted that during the past four instances of repo rate cuts since March 2010, the rupee fell on three occasions a month after the rate change came into force. It also pointed out that the average and median rupee fall in these three instances was 4.1 per cent and 5.2 per cent, respectively.

Mukherjee also noted that repo rate cuts since FY10 did not get transmitted into lower lending rates immediately and in full effect. However, the rupee reacted almost immediately.

He went to the extent of saying that even if inflation cools off, this should not be construed as an enabler for a rate cut in the entire course of the fiscal.

The RBI may like to ensure that a rate cut, if implemented in FY15, is promptly transmitted to lenders. But there is a possibility of a rate cut leading to currency falls and interest rate benefit not being transmitted to borrowers.

Net importers may thus be more severely affected than suggested in this study, which assumes immediate transmission of an interest rate cut, Mukherjee concluded.

PTI