Taper tantrum
Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
The taper tantrum was a sharp rise in bond yields and a rush of capital out of emerging markets in 2013. It began in May 2013, when US Fed Chair Bernanke hinted that the Fed would slow down (taper) its quantitative easing (QE) bond purchases. Investors pulled money out of emerging markets and moved it back to the US. The episode showed that US monetary policy can spill over to countries like India.
Example
The rupee fell to about 68.8 per US dollar in Aug 2013, and India was named among the "Fragile Five" economies. The RBI raised the Marginal Standing Facility rate to 10.25% in July 2013 to tighten rupee liquidity. In Sept 2013, it opened an FCNR(B) swap window to draw in dollar deposits. The lesson was that adequate forex reserve buffers and sterilisation capacity matter.
Don't confuse with
- Quantitative tightening (QT): QT is the actual shrinking of a central bank's balance sheet. The taper tantrum was the market's panic at a mere hint of slower QE buying.
Related concepts
- Unconventional monetary policy
- Quantitative easing
- Quantitative tightening
- Negative interest rate policy
- Yield curve control
- Operation Twist
- Helicopter money