Quantitative

Easing
A Monetary Policy Tool
BY:
MOHAMMADALI SURTI
GHPIBM
Index
What is QE?
How much money is pumped into?
What is QE1, QE2 and QE3?
Why QE?
What is the result?
What next?
What is the Impact of QE on the India?
How Indian Economy is prepared?
What is Quantitative
Easing?
Its an Monetary Policy
Its a policy implemented by monetary authority of various
countries to maintain and change the liquidity in the market.
By using various tools
Its Non-Conventional
What is Quantitative
Easing?
QE is a monetary policy in which central bank increases
the supply of money in the economy by purchasing
various Government securities or any other marketable
security from the market.
What they will do if they runs out of money?
Print money
Mervyn King, Governor of the Bank of England, explains QE
How much they pumped
in?
Why they are doing it?
To come out of the 2008 credit crisis(recession)
Banks doesnt lend
Consumers doesnt spend and save
Producers doesnt manufacture and retrench
QE1, QE2,QE3, operation
twist &QE4
QE1: December 2008 - June 2010
Purchased MBS that had been originated by Fannie Mae,
Freddie Mac, or the Federal Home Loan Banks.
QE2:.November 2010 - June 2011
$600 billion of Treasury securities. The Fed was actually
hoping to spur inflation a bit by increasing the money
supply. Expectations of inflation increase demand, which
would spur economic growth
Did QE worked?
QE achieved some of its goals:
It removed toxic subprime mortgages from banks.
Balance sheets
It also helped to stabilize the U.S. economy, providing the
funds and the confidence to pull out of the recession.
It kept interest rates low enough to revive the housing
market.
It did stimulate economic growth, although probably not
as much as the Fed would have liked.
Did QE worked??
However, it didn't achieve the Fed's goal of making more
credit available.
It gave the money to banks, which basically sat on the funds
instead of lending it out. Banks used the funds to triple
their stock prices through dividends and stock buy-
backs. Since banks didn't lend out the money, inflation wasn't
created in consumer goods. As a result, the Fed's measurement
of inflation, the CPI, stayed within the Fed's target.
QE created an asset bubble, first in gold and other
commodities, and then in stocks, as investors were forced out
of bonds.
What next and Why?
The Fed has been cutting its purchase of Treasury and mortgage-
backed securities by $10bn a month at each meeting, from a peak of
$85bn.
$25bn in August and September, and a final $15bn tranche in
October.
Annual rate of growth in April, May and June to 4.2 percent
The unemployment rate has fallen to 6.2 percent from 8.2 percent
two years ago.
Companies are investing, consumers are spending.
Why He warned that India will
be tested by the Capital
outflows?
QE Tapering and its Effect
First announced on May 17 and sent tremors through global markets.
Asian markets were the most affected; India was worst-hit, having
come to depend on FII investment.
Between June and August, FIIs pulled out 230 billion rupees ($3.7
billion) from the stock market, dragging the Sensex down by 10
percent.
The rupee was also hit, losing 27 percent in three months and the
RBI was forced to take emergency measures to stop and reverse its
fall.
Its Effect
Liquidity problems
Inflation
Import barriers
Depreciation of currency
Indias Foreign Exchange
Reserves USD319.39 billion
THANK YOU!!!