If the wall or worry wasn't already high enough for S&P/ASX 200 Index shares, speculation about what the Reserve Bank of Australia (RBA) will say about tapering is adding to the angst.
The RBA indicated in previous meetings that it will scale down its purchases of government bonds.
Economists are divided on whether our central bank will follow through at a time when the COVID-19 delta strain is playing havoc with the economy.
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Risk of taper tantrum to hit ASX 200 shares
The purchase of government bonds is part of the RBA's quantitative easing (QE) program. QE has injected massive liquidity into the financial system and pushed ASX 200 shares to record highs.
Any talk of tapering the bond purchases could heighten any bouts of volatility on the market.
And it appears the RBA will be forced to say something about its QE program when the board meets tomorrow for their monthly meeting to decide on interest rates. The RBA has essentially reached its target to buy $200 billion in federal and state bonds.
Economists divided on QE tapering
RBA Governor Philip Lowe explicated said in previous monthly meetings that the central bank will lower bond purchases to $4 billion a week from $5 billion.
The economists at three of the big four ASX banks believe the RBA will defer the taper, at a minimum, reported the Australian Financial Review.
These banks as the Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA).
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Westpac is going a step further. It reckons QE could be increased to $6 billion a week as delta shuts down two of our biggest states.
Nearly all experts are bracing for a contraction in the Australian economy for the September quarter. This complicates the RBA's task of striking the right balance in deciding how much support is too much.
Balancing act
National Australia Bank Ltd. (ASX: NAB) is the only one of the big ASX banks that believes the RBA will keep to its earlier promise.
If the country reopens as we close in to the 80% vaccination rate, Australia's GDP will probably stage a strong rebound in the December quarter.
"If they delay then it will be about managing downside risks," the AFR quoted ANZ head of Australian economics David Plank as saying.
"If they don't it will be because of the positive forecast for 2022. Of course, historically relying on their forecasts to guide policy hasn't gone well for the RBA – which is why they have shifted to looking at what is actually happening for the cash rate moves at least."
Tomorrow's RBA meeting might be that much more exciting for ASX investors.
