Tapering

Tapering is a central bank gradually reducing how much money it injects into markets. It is a distinct step from raising rates — slowing the pace of easing rather than tightening outright.

In a crisis, central banks buy assets such as government bonds to supply money, a policy called quantitative easing. When the economy recovers, they scale those purchases back in stages: that is tapering.

Note that it is buying less, not withdrawing money. Cutting monthly purchases from 100 to 80 to 60 is not the same as reclaiming what has already been supplied.

Markets still react strongly. When the United States signalled tapering in 2013, yields spiked and money fled emerging markets — an episode known as the taper tantrum.

Knowing the sequence helps read events: tapering, then rate rises, then shrinking the balance sheet. Markets respond differently at each stage. For individuals, the signal simply means the direction is turning toward higher rates — a point at which reviewing your borrowing terms makes sense.