US Federal Reserve on Wednesday continued the taper cutting of its monthly purchase of bonds by another $10 billion, attributing it to an improving economy.
Stocks dipped immediately and continued to be weak through the day, mostly because of the turmoil in emerging markets such as Turkey caused in part by the taper.
Indian markets and currency will be impacted but officials and market analysts said it won’t be as bad as before. The current deficit, for one, is in a much better shape today.
The cut was announced after a two-day meeting of the Federal Reserve’s top policy making committee, which was also the last to be called by departing chairman Ben Bernanke.
The Fed bought bonds worth $85 billion a month to boost the economy till December, 2013. It was cut by $10 billion in January, and now another $10 billion, as expected.
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases," the Fed said in a statement.
Starting February, the Fed’s monthly purchase of mortgage-backed securities will drop to $30 billion from $35 billion, and longer-term Treasury securities $35 billion from $40 billion.
Talk of an impending taper - a term used to describe the gradual winding down of the the Fed’s Easy Money policy (also called Quantitative Easing) - had wrecked the rupee last summer.
It recovered, albeit tentatively at first, only after Bernanke changed his mind last September saying the economy was not strong enough to be left to grow on its own.
Unemployment figures were bad and market sentiments seemed shaken from two government shutdowns. Bernanke banked out and the rupee recovered.