Haunted by memories of past US interest rate hikes, the world’s central banks are laying the groundwork for a transition to life with less global stimulus, with many countries already signalling moves to the exit.

While the Federal Reserve is publicly committed to keeping interest rates near zero — and no hikes are priced in until late next year at the earliest — official comments about inflationary pressures could become a chorus in months ahead, making tapering a more concrete prospect and likely heightening volatility in global financial markets.

For some developed economies, a return to pre-pandemic conditions means central bank stimulus withdrawal is already in the works.

Meanwhile, more vulnerable central banks are fortifying their financial systems to ward off the type of capital flight that hit emerging markets during the 2013 “taper tantrum,” which was triggered by mere hints of Fed tightening after years of super-easy policy deployed during the Global Financial Crisis.

“There’s a huge divergence among economies emerging from the pandemic, and those lagging behind. Some emerging central banks may be forced to raise rates to defend their currencies, even at the cost of hurting their still-fragile economies,” said Takahide Kiuchi, a former Bank of Japan (BOJ) board member.

“This trend may broaden if the Fed communicates its taper strategy in coming months. This could be among risks for the global economy,” said Kiuchi, currently an economist at Nomura Research Institute.

The Fed has said it would not start scaling back its huge stimulus until there had been “substantial further progress” in healing the US job market.

While job recovery remains patch, stronger-than-expected inflation raises the possibility that the Fed may have to tighten policy sooner than expected.

For now, markets are bracing for the chance the Fed will start to communicate its taper strategy at its Jackson Hole symposium in August, with possible action later in the year.

Some central banks are already responding.

In April, Canada’s central bank became the first among Group of Seven nations to withdraw its pandemic era stimulus and signalled rates could begin to rise in 2022.

The Norwegian central bank has already announced plans to raise rates in the third or fourth quarter of 2021.

New Zealand and South Korea have similarly dropped loud hints that policy tightening is on the agenda as conditions improve.

While decisions in such countries would primarily be driven by domestic considerations, the Fed’s eventual withdrawal of support looms large as a global risk for every central bank.

Even Japan’s central bank, which has hardly budged from its ultra-accommodative settings through decades of global cycles, may see an opportunity to dial back stimulus.

“A Fed rate hike may give the BOJ a perfect opportunity to normalise policy, without worrying too much about triggering a yen spike,” Nomura’s Kiuchi said.

Developing economies face the biggest risks from Fed tightening, which have in the past caused market gyrations as rising U.S. interest rates attracted funds into dollar assets and away from emerging markets, as happened in the 1998 and 2013.

Asian markets, the epicentre of the 1998 Asian financial crisis, remain in significantly better shape with strong foreign reserves to support any currency rout.

India’s central bank governor last week said its reserves now exceed $600 billion, which it expects will help against challenges from “global spillovers.”

But some analysts warn that lessons from Asia’s financial crisis may not apply to the current pandemic-induced shock.

“This crisis is like no other in that it’s not a financial crisis or an economic crisis,” said former BOJ official Nobuyasu Atago, who is now an economist at Japan’s Ichiyoshi Securities.

“The unevenness of the current global economy creates various risks for emerging economies.”

Among nations looking warily at the Fed is Indonesia, which relies on overseas inflows to fund its current account deficit.

“Next year we must prepare for possibilities of the U.S. central bank, the Fed, to shift its monetary policy, reducing its liquidity intervention,” Bank Indonesia Governor Perry Warjiyo said last month, adding such U.S. policy shifts would likely impact local bond yields.

The more vulnerable emerging market central banks, such as Brazil, Ghana and Armenia, have already started their tightening cycle on rising inflation pressures.

Russia’s central bank is expected to raise rates on Friday for the third time in a row with inflation well above its target, according to a Reuters poll.

Turkey was ahead of the pack and aggressively tightened last year, a move its central bank governor hopes will serve as a “shield” against any Fed pivot.

But heavy foreign debt keeps Turkey vulnerable to talk of Fed tapering. Rising U.S. yields recently helped push the lira to all-time lows, delaying planned rate cuts.

For now, policymakers in places such as Thailand, the Philippines and South Africa buy the view the Fed won’t hike prematurely and are confident that its communication to markets will be transparent.

But they acknowledge risks.

“The Fed has said it would like to see more inflation in the United States, they’ve indicated they’d have some tolerance for inflation,” South African Reserve Bank Deputy Governor Fundi Tshazibana told Reuters.

“What all of us don’t know is what that tolerance band is.”—Reuters