EMDEs need to be prepared for a rapid rise or fall in asset prices and exchange rate volatility arising from policy action of dominant economies. True, every central bank is bound by its own mandate for domestic policy imperatives but there are unintended spillovers that impact other economies, which Governor Rajan has been highlighting in different international fora.
Fortunately, the spillover effect is beginning to be recognized now. In its latest monetary policy statement, the Federal Reserve has stated that their assessment of economic conditions will take into account a wide range of information, including international developments.