Tapering has recently become a word that is often discussed in the financial world. It is also the word that has recently been able to give a shock to the financial sector and the investment world. What exactly is tapering?
Launching Investopedia, Monday (23/8/2021) tapering is one of the weapons owned by a country’s central bank. That weapon will be scary if the one who uses it is the central bank of a big country like the Federal Reserve in the United States (US), because the impact will spread everywhere.
Tapering itself is a policy of the central bank that reduces the purchase of assets such as bonds (debt securities). This policy is the opposite of a weapon called the easing of quantitative easing (QE).
The Fed itself has made easing to stimulate the US economy which was previously sluggish by the COVID-19 pandemic. The policies carried out include lowering interest rates and ‘printing money’ by buying US treasuries up to US$ 120 billion per month.
Now when the policy is successful and the economy starts to improve, to prevent the economic engine from overheating, tapering is carried out.
The economic improvement in the US itself has begun to be seen. Reflected by inflation that has increased and yields or yields on US government bonds (US Treasuries) are also creeping up.
Then why did it get excited?
If a taper tantrum occurs, world investors who have jumbo money will withdraw their money. Then they spread to developing countries such as Indonesia.
The reason is simple, investors are definitely hunting for money. So when they have a tantrum, placing their money in the US will be more profitable for them. Because the US benchmark interest rates will rise.
When foreign funds leave Indonesia in large and continuous amounts, it will certainly shake up the investment and financial world in the country. Because when global investors withdraw their money from Indonesia, they need large US dollars.
If the demand for the US dollar increases significantly, its value will increase and our beloved rupiah will weaken. Horrified again, psychologically market participants will also panic.
Read now: A Good Financial Strategy That Works
