QUANTITATIVE EASING

QUANTITATIVE EASING

Subject : Economics

Context : n India’s case when RBI spoke of rolling back the CRR-cut last year, which was interpreted as being the end of the easy-money. The recent announcements by RBI on further liquidity infusion leads to the question of whether this serves a broader purpose.

Concept :

• QE refers to an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
• Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
• Quantitive easing is typically implemented when interest rates are already near zero, because, at this point, central banks have fewer tools to influence economic growth and does not involve the printing of new banknotes.

Reasons:

• Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans.
• Raises stock prices and lowers interest rates, which in turn boosts investment.
• can also boost economic activity by raising confidence.