How Do Central Banks Execute Tapering?

Business & Management
#1

Setting market expectations and reducing market uncertainty requires open communication with investors about the direction of central bank policy and future actions. This is why, rather than suddenly ending expansionary monetary policies, central banks usually taper them gradually.
By defining their strategy for tapering and the particular conditions under which tapering will continue or stop, central banks aim to relieve market anxiety. In this sense, any anticipated cutbacks in QE policies are announced ahead of time, allowing the market to begin making adjustments before the activity occurs.
In the event of quantitative easing, the central bank would declare its intention to reduce asset purchases and either sell or allow assets to mature. The goal is to lower the overall quantity of central bank assets and, as a result, the money supply.