<p>Taper refers to the gradual reduction of a central bank’s asset‑purchase program, most commonly associated with the unwinding of quantitative‑easing (QE) measures. When a central bank has been buying government bonds or other securities to inject liquidity into the economy, tapering signals a shift toward less accommodative monetary policy by decreasing the pace of those purchases. The move is typically announced in advance to give markets time to adjust and to avoid abrupt shocks to financial conditions.</p>

<h2>How It Works</h2>
<p>During a taper, the central bank publishes a schedule outlining how much it will reduce its monthly purchases over a set period. For example, if the bank was buying $120 billion of assets each month, it might announce a reduction of $10 billion per month until purchases reach zero or a new, lower target. The process is data‑dependent: officials monitor inflation, employment, and growth indicators to decide whether to accelerate, pause, or reverse the taper. As purchases slow, the central bank’s balance sheet expands more slowly, which can put upward pressure on long‑term interest rates because there is less demand for bonds in the market.</p>

<h2>Why It Matters</h2>
<p>Tapering influences borrowing costs, currency values, and investor sentiment worldwide. A well‑communicated taper can help normalize policy without triggering market turbulence, while an unexpected or aggressive taper may cause sharp rises in yields and volatility. For instance, the U.S. Federal Reserve’s 2013 “taper talk” led to a noticeable increase in Treasury yields and affected emerging‑market currencies as investors reallocated capital. Understanding taper dynamics is essential for policymakers, financiers, and businesses that need to anticipate changes in financing costs and economic conditions.</p>