Quantitative easing is an unconventional monetary tool. When policy rates are already very low, a central bank may buy government bonds or other assets in bulk, paying with newly created reserves. The aim is to ease financial conditions, support lending and push inflation toward target. QE can lift asset prices, but it also raises debates about side effects and how to unwind the purchases later.
Key takeaways
- QE is large-scale asset buying by a central bank, not a cut in the policy rate alone.
- It tries to lower longer-term yields and encourage risk-taking in markets.
- Results depend on banking system health and how markets expect the programme to end.
- QE is not free stimulus; exit and inflation risks have to be managed.