It is difficult to control many economic variables with just one tool – interest rate
Low interest rates may fail to encourage consumer spending if there is little confidence in the economy. They might fail to increase their spending if their jobs are at risk because of the downturn in the economy – Liquidity trap. Banks are unwilling to increase their lending during a recession, and businesses may not be able to invest in new facilities for expanded operations due to the confidence level in the economy.
Time frame: the effect of policy decisions, a decrease in interest rate could take as long as a year or more to be felt and have a significant impact on a recession.
Interest rates could have more effect on some sectors of the economy than on other sectors. A reduction in interest rates reduces the rates on mortgage payment, thereby increasing their disposable income but reducing the disposable income of people with savings.
A change in interest rate has an effect on the exchange rate index.
Fiscal Policies
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