Quantitative

EasingA 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

• It’s 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 doesn’t lend

• Consumers doesn’t spend and save

• Producers doesn’t 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

India’s Foreign Exchange

Reserves USD319.39 billion

THANK YOU!!!