Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate the economy when traditional interest rate cuts become ineffective. It involves large-scale purchases of financial assets, such as government securities or corporate bonds, from the market. By increasing the money supply, QE aims to lower interest rates, boost lending, and encourage investment and consumption.

Central banks, such as the Reserve Bank of India (RBI)U.S. Federal Reserve, typically implement QE during economic slowdowns or financial crises. When banks and financial institutions sell their assets to the central bank, they receive liquidity in return. This infusion of funds increases money circulation, making borrowing cheaper for businesses and individuals. As a result, QE can help revive economic growth and prevent deflation.

However, while QE can support economic recovery, it also carries potential risks. Excess liquidity in the system may lead to inflation if not managed carefully. Additionally, it can cause asset bubbles as investors move money into stocks, real estate, or other higher-yielding assets seeking better returns. Over time, unwinding QE—known as Quantitative Tightening (QT)—can also disrupt financial markets if not handled gradually.

In summary, Quantitative Easing is a powerful but complex monetary policy used to stabilize the economy during downturns. It helps ensure credit availability, lowers borrowing costs, and supports economic confidence. Yet, policymakers must balance the benefits with the long-term implications of inflation and market volatility, ensuring a smooth transition back to normal monetary conditions.