Rato sees need to address inflation, US slowdown

Singapore, Sep 17: International Monetary Fund chief Rodrigo Rato called on policy makers today to be ready for a slowdown in the United States, despite the prospect of strong growth in the world economy, and to tackle rising price pressures.

Opening a meeting of the IMF's policy-setting International Monetary and Financial Committee in Singapore, Rato said interest rates may have to rise in the United States, euro zone and Japan.

He said policy makers needed to ''act with foresight to head off potential strains'' from rising inflationary pressures in the rich world, slower U.S. growth, high oil prices and increased national protectionism.

To help keep inflation firmly in check, the U.S. Federal Reserve may have to raise rates further, Rato said. The Fed halted a two-year string of interest rate rises on August. 8.

That pause gave the Fed an opportunity to stand back, judge the impact of its policy tightening and see how a cooling housing market would eventually play out, he added.

In Japan, Rato said, the authorities should raise rates only gradually because there was little danger of an inflationary surge, while the re-emergence of deflation would be costly.

In the euro area, Rato said further interest rate increases may be needed if the 12-member bloc's recovery develops as expected.

But inflation pressures in the euro zone are broadly contained for now, he said, adding that, faced with risks to growth, policymakers could afford to be cautious in tightening monetary policy.

Turning to emerging economies, Rato said more effort was needed to advance reforms in capital markets and the financial sector in China, while elsewhere trade barriers should be lowered to improve competitiveness.

Rato also urged ''sustained policy actions'' by major players to rebalance the world economy, skewed by deficits in the United States and trade surpluses in emerging Asia and oil-producing countries.

''There is a risk of a more disorderly unwinding that would imply a heavy cost for the global economy, especially given that foreign investors' exposures to losses from a U.S. dollar decline are large and growing,'' Rato said.

Reuters