What is Tapering
by US Fed?
The term “tapering” has
been going around for quite sometime in the financial market. In last few
weeks, this term of tapering has played havoc with Indian financial markets and
made even our regulator, Reserve Bank of India, nervous. The
financial pundits even in India will be closely watching Federal Reserve Board
Chairman Ben Bernanke when he testify before the Senate Banking, Housing
and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report
to the Congress” at Capital Hill in Washington on 18th July, 2013
For the benefit of our readers, I am giving below some details
which I am sure will make the subject easier for bankers and students and they
will be able to appreciate the term better.
“Tapering” has come to financial jargon
when in May 2013, Ben Bernanke stated that Fed may taper the bond-buying
program known as quantitative easing (QE) in the coming months.
What he meant by tapering was that Fed will start reducing the amount of bonds
being currently purchased by Fed. At that time, Fed was
purchasing $85 billion of bonds per month. The next meeting
is on 18th September and thus there were wide speculations that after
18th September, 2013, Fed may reduce the size of monthly bond purchases to
$70 or $75 billion i.e. tapering to the extent of $10 to 15
billion Such a step is reducing the size of QE is being termed as
“tapering”.
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