As banks turn immune to monetary policy, QE may save the day for RBI

If the central bank views asset purchases as a way to influence the waning quantity of money, then it should act now. Doing so may well save the day

With India’s nominal GDP growing at its slowest pace in 17 years, it’s a given that the central bank will cut interest rates again this Thursday.

What’s the point, though? Commercial bank lending rates have turned immune to monetary policy, so much so that a sixth reduction this year in the benchmark price of money will make hardly any difference. The only medicine that can work is quantitative easing, a remedy authorities aren’t even discussing. QE may not cure the patient, but it may well succeed in bringing India’s economy out of a coma.

To see why the quantity of money is