Quantitative easing will not solve SA's problems of high wage pressure and inefficient SOEs raising public debt
There has been much talk about quantitative easing being the easy solution to SA’s financial problems, without understanding its underlying purpose.
It is useful under two specific conditions. In the prototype situation, the policy interest rate has a lower bound of zero. When the economy requires further monetary stimulus and the policy interest rate is already near zero, traditional interest rate policy becomes ineffective and an alternative monetary stimulus is needed; hence QE.
With more cash and lower interest rates, the banks were supposed to lend more and stimulate the economy. Unfortunately, the banks received interest on their cash deposits at the Fed and remained overly cautious, so they didn’t undertake much new risky lending. However, their balance sheets became healthy and they survived the crisis.
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