What are targeted asset purchases primarily intended to achieve?

Targeted asset purchases are primarily intended to expand the supply of aggregate reserves in the financial system. This process is crucial for ensuring that the central bank can maintain its policy rate target effectively. By increasing the amount of reserves available to financial institutions, the central bank aims to lower interest rates and stimulate economic activity. This is particularly important during times of economic downturn or when conventional monetary policy tools, such as lowering interest rates, are less effective or have been exhausted.

In this context, expanding the supply of aggregate reserves helps to create favorable conditions for lending and investment, which can support overall economic growth. This approach is often employed by central banks to enhance liquidity in the financial system and ensure that monetary policy is transmitted effectively through the economy. By focusing on targeted asset purchases, central banks can more directly influence specific segments of the financial markets, which can lead to broader economic improvements.