Addressing at the St. Petersburg G-20 Summit, PM said the policy of unconventional monetary expansion in advanced countries had some success but it also had spillover effects.
"When policy was being loosened, there was a surge in capital flows to emerging markets, which helped some countries finance their current account deficits while generating upward pressure on the currencies of other countries. With markets now anticipating a reversal, we are seeing a large outward flow from emerging markets. Since most emerging markets now operate with flexible exchange rates, they have experienced varying degrees of currency depreciation, posing problems in many cases," he said.
"The conventional view that capital volatility should not be a source of concern as long as exchange rates were flexible is now being questioned. Sudden increases in cross border flows not only affect the exchange rate, they also affect credit volumes and asset prices. Such flows led to excess leverage in the industrial countries before the global financial crisis. They are leading to stock market and exchange rate volatility in emerging markets today," he added.