Definition
Taper Tantrum
The taper tantrum was the 2013 market upheaval when the US Fed signalled it would slow its bond purchases, triggering sharp capital outflows from emerging markets including India.
In 2013, hints that the Fed would taper quantitative easing sent US yields up and sparked a rush out of emerging-market assets. India, then running large twin deficits, saw the rupee plunge and bond yields spike, landing it among the 'Fragile Five'.
The episode forced policy responses, including special swap windows to attract dollar deposits, and pushed India to strengthen reserves and macro stability. It remains a cautionary tale of how Fed policy shifts ripple into Indian markets.
Related terms
- TaperingTapering is the gradual reduction of a central bank's bond-buying stimulus, a step toward tighter policy without an immediate rate hike.
- Federal Reserve (US Fed)The Federal Reserve is the central bank of the United States, setting US interest rates and money supply, with policy decisions that ripple across global markets including India.
- Sudden StopA sudden stop is an abrupt halt or reversal of foreign capital inflows into an economy, which can trigger a currency slide, a credit crunch and recession.
- Hot MoneyHot money is short-term, speculative capital that moves rapidly across borders chasing the highest returns — and can destabilise a currency when it flows out suddenly.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.