Context:

The coronavirus-led market rout hit developing economies hard. In order to combat economic pain from the COVID-19 pandemic, more than a dozen emerging markets have adopted quantitative easing.

Quantitative Easing (QE)

• Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment.
• Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fi xed-income securities.
• It also expands the central bank’s balance sheet.

Steps taken by RBI to boost money supply during COVID

• Operation Twist
• Reducing Repo and Reverse Repo.
• Loan moratorium
• Reduction in CRR by 100bps
• Long Term Repo Operation
• Deferment of Net Stable Funding Ratio.