What is quantitative easing?

Quantitative easing is a monetary policy primarily used by central banks to stimulate the economy when standard monetary policy, such as lowering interest rates, becomes less effective—especially during periods of very low inflation or recession. By purchasing government securities, the central bank effectively increases the money supply in the economy, which aims to lower interest rates and encourage lending and investments. This increase in liquidity can help drive economic growth and potentially support higher employment levels.

The focus on buying government securities allows the central bank to inject cash directly into the banking system, facilitating more available credit. As banks receive this influx of funds, they have more capacity to lend to businesses and consumers, which can lead to increased spending and investment. In times of economic stress, this tactic serves as a crucial tool for promoting monetary expansion without directly raising taxes or cutting government spending.