Fed admits it triggered emerging markets sell-off but says some countries' policies made them vulnerable

The US Federal Reserve acknowledged on Tuesday it likely triggered a financial market sell-off in the developing world but said policies in countries such as Turkey, Brazil and India made them especially vulnerable to external shocks.

The Fed said in a report to Congress that the “stresses that arose in the middle of last year appeared to be triggered to a significant degree by Federal Reserve communications”.

In mid-2013, the US central bank said it could soon start winding down a bond-buying stimulus programme, sending stocks, bonds and currencies plunging across many emerging markets.

The announcement stoked global tensions over potentially destabilising shifts in international money flow, as when India’s central bank chief fretted that the United States should be more aware of how its policies affect the world.

In its report, however, the Fed pointed a finger back at some developing countries, saying they need to look in the mirror when assessing why their markets took a big hit.

Fed analysts built an index measuring economic vulnerability across 15 major emerging markets. They found Turkey was the most vulnerable, followed by Brazil and then India. Indonesia and South Africa followed in the ranks of the most vulnerable.

The index was based on six factors, including current account balances and foreign currency reserves relative to economic output.