IMF's Rato says dollar undervalued, risks grow

MADRID, Oct 8 (Reuters) IMF chief Rodrigo Rato said on Monday the U.S. dollar was undervalued and that risks to the global economy from market turbulence were greater than six months ago.

''From the point of view of comparison on a weighted trade basis, the dollar would be below parity, but that doesn't mean that is the case against all currencies,'' the International Monetary Fund's managing director said at an economic seminar in Madrid.

Rato said market turbulence would hit economic growth this year but he was still relatively optimistic about 2008 even though risks to the global economy were greater than six months ago.

''Our view of the world economy in 2008 is relatively optimistic, but we have to say that if the turbulence in credit markets is prolonged, the effect on the economy would be much more grave,'' he said.

''The risks are greater today than six months ago,'' he said, adding that emerging markets could face financing and economic risks if the crisis drags on but that Latin America was less vulnerable than during previous shocks.

Rato said European central banks had reacted correctly to the credit crunch.

''The moves taken by the central banks have been the correct ones. From the point of view of governments, they have to understand that this credit crisis is going to have an effect on real growth,'' he said.

''International crises have most effect on countries which require international financing,'' Rato said.

Reuters MP BD1628