How does QE
What is quantitative easing and what else can the ECB do?
In the business press, the term quantitative easing (QE) or a quantitative easing the speech. The term describes a measure of the European Central Bank (ECB), which thereby brings central bank money into circulation on a large scale and thus ensures more liquidity.
The term quantitative easing comes from the fact that with this measure the quantity, i.e. the Amount of central bank money is increasing. In practice, the central bank simply prints more money to buy corporate and government bonds.
Advantages of quantitative easing
Through quantitative easing, the central bank wants to push interest rates further and prevent a credit crunch. This enables states to obtain money cheaply from investors. This is done by Banks get cheap money from the ECB and buy high-yield government bonds with that money. One speaks here of so-called carry trades.
Ideally, this money is invested in state infrastructure projects, which benefits the economy. Companies can also benefit from the lower interest rates Expansion measures finance cheaply. In addition, consumers can hope for cheap loans (building loans, car loans, etc.). When the money locks are opened, a currency often loses value, but this improves companies' export opportunities.
Disadvantages of quantitative easing
Starting the printing press also has disadvantages: On the one hand, it puts a strain on the currency, which helps the exporting company, but also helps the consumer Devaluation of savings leads. On the other hand, the currency weakness means that importing companies have to dig deeper into their pockets, as foreign goods and raw materials often become more expensive.
The loose monetary policy can also too Speculative bubbles on stock and real estate markets because quantitative easing invites riskier investments, at least temporarily. Quantitative easing can also lead to higher inflation if the ECB misses the right time to tighten rates again in due course. The effectiveness of the measures decided by the ECB is also controversial among financial experts.
Conclusion: QE limits the resources of the ECB
By opening the money locks and buying up securities on a massive scale, the ECB's room for maneuver has almost been exhausted, as key interest rates have already remained at a record low of 0.05 percent. In addition to the key interest rate, the ECB can also control the deposit rate. But commercial banks already have to pay penalty interest on deposits at the ECB in the amount of 0.2 percent, which is why this is the case here too Trading margin limited. The monetary policy instrument of emergency loans no longer seems to make sense in view of the massive glut of liquidity.
Fed: rate hike canceled in 2019 In March the Fed announced that no rate hike is planned for 2019. In June there was even speculation about a rate cut. > read more
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