On July 17, US Federal Reserve Governor Ben Bernanke gave testimony before the US Senate that the Fed would start "tapering" quantitative easing "later this year". His statement caused considerable disturbances in the equity, bond and currency markets. Last week, the Fed finally began the taper. How did markets react differently? As Table 1 shows, they were more bullish on US stocks than in response to the July announcement. Intriguingly, several emerging-market stock indices did noticeably better in the 48 hours after the taper than they did in the 48 hours after the July statement. As for the currency markets, inferences have to be limited as of now. As Table 2 shows, the Indian rupee did not get properly hammered in the 48 hours after the July statement - though the Indonesian rupiah did. This time around, the rupee actually appreciated although the ringgit, the rupiah and the won lost value. In the bond markets - shown in Table 3 - the 48 hours after the taper surprised many. Indian government securities did not see the turmoil they did mid-year. What is different this time around? As Table 4 shows, India is one of the only emerging-market countries to have shown an improvement in GDP growth since July. Meanwhile, lower gold imports - shown in Table 5 - mean India's current account deficit, once in dangerous territory as a percentage of GDP, is now not quite as worrying as are the CADs of India's peers - to an outside observer, at least, as Table 6 shows. The only place where India is still an outlier, and has shown no improvement, is in inflation, shown in Table 7. Judging by the FII and FDI inflows shown in Table 8, confidence in the Indian economy is not as weak as it was in mid-year.
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