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Newsletter

2021 1st Edition (Other Editions)

Financial decisions under the influence of Quantitative Easing

I believe Quantitative Easing comes across as a familiar term. Indeed, It is a form of unconventional monetary policy in which the central bank purchases longer-term securities from the market to increase the money supply. Such an approach has been found in Japan, the UK, the states, and the EU to aid recessions.

Central banks will create new banknotes and use the money to acquire new assets. Through buying new assets, the government is indirectly injecting a new stream of money supply into the economy, which ultimately improves employment levels and helps stabilize the economy’s prices. Quantitative Easing’s ultimate goal is to “ease” the cost of borrowing by reducing the interest rate, which encourages people to borrow money for consumption purposes. However, these benefits come with potential downsides to be “inflationary” as a rise in money supply leads to further inflation.

So what does this imply? A lower interest rate during Quantitative Easing, meaning that the return for saving regularly will not be justified. What should we choose? Invest or Save during periods with Quantitative Easing? It is different for everyone, it isn’t a “One Plan Fit All” thing. To answer this question, we have to analyse our financial position and long-term investment goals, and we will be able to help with that.