When the economy is suffering from high inflation, economists rule out the inflation process through quantitative tightening which means controlling interest rates to stable prices and ensuring maximum employment in the economy. The interest rate is the rate at which banks offer their services to consumers. Services like mortgages, students’ loans, credit cards and government borrowing. Interest rate is a tool to stabilize prices in the economy. The whole mechanism is called quantitative tightening.
Where Quantitative easing works differently. When the economy needs help and interest rates are already low in the market and are not being helpful in increasing economic activity and in stable prices then the central bank intervenes using the practice of quantitative easing by expanding treasury bonds, stocks, government backed securities to increase cash in hands which pump the economic activity.
Since Pakistan is running out of reserves and needs more dollars to ensure quantitative easing, the IMF bailout package is a desperate need for Pakistan to abstain from bankruptcy. The injection of dollars from the IMF would then be helpful in increasing economic activities in the economy.
