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View all search resultsTiming the next taper and its effect on Indonesia
The global economy started to gradually recover in the first half of 2021 from the COVID-19 pandemic-led recession in 2020 as vaccinations began to be distributed across the world, albeit unevenly.
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State-Owned Enterprises (SOE) Minister and the government’s COVID-19 Response and Economic Recovery Committee chairman Erick Thohir (center) talks at a press conference on the arrival of the new batch of bulk vaccines from Sinovac Biotech Ltd, China, at the cargo terminal of Soekarno-Hatta International Airport on Monday. (Courtesy of the COVID-19 Response and Economic Recovery Committee.)
T
he global economy started to gradually recover in the first half of 2021 from the COVID-19 pandemic-led recession in 2020 as vaccinations began to be distributed across the world. However, the pace of economic recovery tends to be uneven among countries depending on the state of the pandemic, the availability of vaccines and the amount of stimulus of each country.
Countries with fast, widespread vaccinations (i.e., China, the United States and the European Union) have experienced faster recovery and rising inflation, which then raises questions on when the best and most appropriate time is to unwind the massive stimulus policy that has been deployed since the onset of the pandemic.
Debate on the timing of the great stimulus unwind has been dominating market sentiment this year, especially the talk of the tapering policy in the US. Tapering means to unwind and reduce the amount of bond buying that is currently being done to inject liquidity into the economy.
The minutes of July’s United States Federal Open Market Committee (FOMC) meeting showed the US Federal Reserve System's (Fed) members’ inclinations to start the tapering by the end of this year, as the economic indicators showed strong recovery. Yet, the Fed’s official policy stance so far remains dovish, as reflected in Jeremy Powell’s Jackson Hole speech. This week, the market will monitor the FOMC meeting that will be held on Tuesday and Wednesday to look for signals of possible timing of the Fed’s tapering.
The European Central Bank (ECB) is also considering the timing for tapering. The ECB has announced it will trim emergency bond purchases over the coming quarter, a small step toward unwinding the emergency aid that has supported the euro zone economy during the pandemic.
Some other central banks, mostly those of emerging market (EM) countries, have even moved further by raising interest rates due to the rising inflation pressure. Brazil, Russia and Chile are among the countries that have already raised interest rates this year each by 325 basis points (bps), 250 bps and 100 bps.
Thus, the talk of timing the stimulus exit is highly relevant now.
