Quantitative easing

Quantitative easing is used mainly when the policy rate is already close to zero and cannot usefully be cut further. The central bank buys large amounts of assets, mostly government bonds and sometimes corporate bonds or other securities, from investors such as pension funds and insurers. It pays by crediting new reserves to commercial banks' accounts at the central bank; no physical money is printed. The purchases push bond prices up and yields down, and the sellers, now holding cash, tend to move into other assets such as corporate bonds and shares.

The aim is to lower borrowing costs across the economy, support asset prices and spending, and keep inflation from falling too far below target. Major central banks used it heavily after the 2008 financial crisis and during the pandemic. Critics argue that it inflates asset prices, favouring people who already own shares and property, and that it can blur the line between monetary policy and government financing. It also leaves the central bank holding a large bond portfolio, which is exposed to losses when interest rates later rise.