Given that in the developed countries of the world, the EU, the US, Japan, the UK anti-Pandemic Covid-19 vaccination program is progressing rapidly, the eye of governments and officials of these Central Banks is on when to start “tapering” in bond markets.
The “tapering” technique is forced in its application and should be done to reduce purchases of government bonds by the central banks of these countries. The amount should be reduced by $43trillion in 2021, while by 2022 the reduction should be close to $1trillion.
Tapering is an essential strategy especially for the US and UK economies as they are also the first economies to emerge rapidly from the economic quagmire caused by the pandemic. The use of tapering will further help the recovery of these economies.
The main indicator that will determine when the tapering process (reverse QE) will begin is the economy’s full-time index along with the 2% inflation target (FED, ECB) and as they will try to contain inflation, if not <2% close to 2% a year. The data for April showed inflation figures in the US at 4.2%.
Inflation in Japan is a long way from the 2% target. In Q12021 the Japanese economy was still in recession.
Japan will be slow to implement tapering policies while fiscal measures to support its economy continue until Q32021.
The ECB is in a state of stagnant inflation with near-zero interest rates and so far, failed artificial inflationary pressures that are not paying off through the €1.85trillion PEPP programme.
Inflation will remain below 2% a year. However, this does not mean that tapering is not required in PEPP.
Q32021 will be the crucial element in reducing the volume of government bond purchases that the EU will have to make.
