Question of the week
Quantitative easing involves central banks buying assets on a massive scale with the primary objective of keeping banks awash with liquidity to encourage them to lend to companies and individuals. Secondary objectives include assisting governments with financing their economic support packages and lowering risk premiums on risky assets.
By purchasing securities being held by banks, quantitative easing can buoy demand for government bonds so that new issues will have less difficulty finding buyers. This proactive central bank policy drives interest rates sharply lower and temporarily avoids the question of government funding costs.
The opinion expressed above is dated 22th October 2020, and liable to change.
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