Quantitative easing is a part of monetary policy, which involves the Central Bank creating money electronically, buying long-dated securities and expanding the size of the Central Bank reserve balance sheet.
Reserve Management Purchases RMP are central bank purchases of short-term government securities (typically Treasury bills) carried out to ensure there are enough bank reserves in the financial system to keep short-term interest rates close to the policy target. They are part of operational monetary policy, focused on market functioning rather than economic stimulus.
These RMP’s are also referred to as “Not QE“. Because Central Banks often make a big point of saying this is not QE, even though some effects are ironically quite similar to QE.
The main difference between QE and Not QE
Not QE (or RMP) involves purchases of short-term Treasury bills are usually part of routine open market operations aimed at managing liquidity and keeping short-term interest rates close to the policy target. For example, suppose the Federal Reserve cut the main base rate (Federal Fund rate) but thought that short-term Treasury bill yields were higher than they should be, they can just buy the bills themselves to reduce the yield on Treasury bills closer to their target interest rate. So it is a way to make sure that all interest rates in the economy are closer to their target.
Because T-bills mature quickly, these purchases have little effect on long-term yields or broader financial conditions (unlike QE).
This is why central banks often stress that T-bill purchases are about maintaining smooth money-market functioning, not about easing monetary policy in the way QE does.
How it works
2025 RMP
In 2025, the Federal Reserve announced a new program of Treasury bill purchases – starting around $40 billion per month. The Fed Chair Jerome Powell says this is not part of monetary policy or monetary stimulus, but to make markets more effective.
As a result of the policy, the Secured Overnight Financing Rate dropped from 3.9% to 3.67% by the end 16 Dec. – A fall in short-term rates
Why Would Central Bank Pursue “Not QE?”
- Short term interest rates on government bonds are higher than they would like
- If Central Bank was worried about a shortage of liquidity in short-term money markets. Buying Treasury bills is a way to ensure banks can easily access liquid money to fulfill obligations or lend to firms.
- Not QE avoids some of the implications of buying long-term debt, which has connotations of ‘monetising debt’, reducing long-term bond yields and increasing asset values
Evaluation – Similarities of QE and Not QE
- However, although Central Banks claim this is not QE, the effect on Central Bank reserves is the same. There is also a similar increase in liquidity in the financial system.
- The Bank of America said that the “QE-like” impact on markets could result in bond yields at the longer end of the duration curve coming down as well. Business Insider
- If US Federal Reserve already has reserves of $2.6 trillion, why do they need to add more liquidity into the system?
- Reducing short-term yields may have a stimulus effect.
Note in US – Treasury Bills (in UK short-term gilts)
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