India central bank: Emerging markets 'on their own'
A failure to address turmoil in emerging markets could have serious implications such as paving the way for another financial crisis, Indian central bank chief Raghuram Rajan told CNBC on the sidelines of the G-20 meeting in Sydney.
Battered emerging markets have received an "unintended" message that they are out on their own, the Reserve Bank of India (RBI) Governor added.
The comments are the latest from Rajan, in charge of the RBI since September, vocalizing his dissatisfaction with the impact of a scaling back of U.S. monetary policy.
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"Because the message that has gone out is that you [emerging markets] are all on your own, no-one is going to come to your help if you are running a large current account deficit… [In response you] build your reserves, shrink your current account deficit and have a very competitive exchange rate. If that's the message that goes out, we're setting in place the roots of the next crisis," Rajan told CNBC on Saturday.
Emerging markets such as India have been hit hard by Fed tapering, which began in December, as it has led to an exit of foreign cash.
"Now that the industrial countries are getting back into a more healthy growth situation, there's a sense that you - emerging markets - are on your own, [you have to] figure out what you have to do," Rajan said. "That wasn't the message that is or was intended by monetary policy actions… but that was the message that was coming across." he added.
Amid turmoil in emerging markets last year, the Indian rupee hit a record low just shy of 70 per dollar in August. Countries with large account deficits such as India and Indonesia have been especially vulnerable to selling.
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The implications of monetary policy in developed countries for the developing world have been a key theme at the G-20 meeting of world finance ministers and central bankers in Australia.
Rajan said he had a good relationship with Fed chair Janet Yellen and that he had spoken with her about a more "collective" approach to monetary policy.
"Janet and I know each other, I respect her greatly... And I don't think we are talking about something that she doesn't already know [emerging market volatility.] We are talking about how we should collectively address these issues and communicate with markets," he added.
Rajan told CNBC he welcomed the notion of tapering but central bankers needed to acknowledge the spillover effects of their policies.
"The only thing I have been calling for is in the communication there should be some sensitivity to emerging markets," he added.
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Rajan added that efforts to get India's house in order should benefit the rupee .
"My belief is that we should be focused on getting our fundamentals right and that's been our focus since the summer of last year," he said. "One of the main aspects of our fundamentals is our inflation rate. If investors have a sense our inflation rate is going to come down they will be more prepared to take a bet on the rupee."
— By CNBC's Katie Holliday: Follow her on Twitter