Leaving tapering until December will be ‘messy’

Starting tapering of quantitative easing (QE) in December would be “messy”, according to Thanos Papasavvas, fixed income and currency strategist on the emerging market debt team at Investec Asset Management.

Speaking to Money Management, Mr Papasavvas predicted an earlier onset of withdrawing monetary stimulus than currently expected.

Tapering has been a constant discussion in the industry for the past few months as managers and analysts have tried to predict when the chairman of the Federal Reserve, Ben Bernanke, will begin the programme.

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Mr Papasavvas said, however, that it will begin in a matter of weeks rather than in the estimated December. “Bernanke wants to make sure the market knows exactly what he is doing,” he said.

“If he leaves it until December with only a month for him to leave before someone else takes over from him, then he would not have the time. The market would not be able to focus on too many things at one time and it will be messy.”

Commentators have previously expressed concern about the tapering timescale, with one saying it is very dangerous for markets.

The rationale for beginning tapering in September comes down to stability, Mr Papasavvas said. “Now is the time for him to do it and all under a controlled mechanism before the market gets ahead of itself.”

Although the situation in Syria is ongoing, it is not market related, he added. Now the eurozone has now stabilised and China has been improving, there is no reason for Mr Bernanke not to start in September, he said.

The US Federal Open Market Committee (FOMC) is next due to meet and release papers on either 17 or 18 September.