The central bank routinely keeps a check on the mechanism to ensure that the desired results are showing on the interest rates and tweaks the quantum of buying back of bonds accordingly
What are the intended consequences of QE?
Inflation control and growth stimulation through low interest rates are the prime motives of any QE mechanism. QE is taken under stringent supervision of the central banks and has to be done with a clear objective in mind. Low interest rates would translate to people wanting to take more loans and since banks would also have more liquidity (through the QE auctions), they would be more than willing to lend at low rates. This can jumpstart the economy and get growth back on track
What are the unintended consequences of QE?
Stagflation is the biggest risk of uncontrolled QE. Interest rates may remain close to zero but prices of commodities may go up and growth may not be able to catch up with inflation. Another critical impact of QE would be spending pattern of retirees (or people who rely solely on interest income). They maybe badly hit as U.S is facing a demographic (ageing) crisis and this can have long term repercussions on the economy.
To conclude, the role of QE should and must be limited to that of CPR. Though it helps gather the initial momentum, its imperative that macro economic policy making should be consistent with growth in mind. CPR can revive someone but can it cure someone of a heart disease?. Irresponsible and reckless QE would only do more harm than good
About the author:
Salar Mohamed Bijili is an MBA graduate in Marketing from SIIB. Writes on economy, finance and Insurance. He can be reached at