The Fed has reduced its monthly bond purchases by $20 billion to $65 billion on signs of an improving US economy. The reduction in stimulus, known as tapering, may affect capital flows to emerging markets and impact their currencies. The Fed first talked about tapering in May 2013, sending markets the world over into turmoil and the rupee to a record low. However, the reduction started in January. “There must be some benchmark...Should it be $10 billion every quarter or $20 billion...without destabilizing the economy.
“Nobody knows how they are going forward. We want that to be a little more calibrated and one that takes others into confidence. Central bankers should be informed as they look into monetary policies. There has to be guidance,” Mayaram said. The Indian government has assured investors the country is better prepared to deal with any impact of tapering. According to the minutes of the US Federal Open Market Committee meeting in January, several participants said there should be “a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting.” (PTI)