0912.073.683

Loan 0912.073.683 De Rato Says Rate Rises May Be Needed to Curb Prices (Update2)
By Matthew Brockett and Oriel Morrison
Nov. 17 (Bloomberg) -- Central banks may need to raise interest rates further to cool inflation amid the fastest global economic growth in decades, International Monetary Fund Managing Director Rodrigo de Rato said.
``There is no clear slowdown,'' de Rato said in an interview in Melbourne, where he will attend the meeting of the Group of 20 industrial and emerging economies this weekend. ``In many important economies inflationary pressures have not yet disappeared. That's why monetary policy is crucial today.''
Central bankers including Federal Reserve Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet and People's Bank of China Governor Zhou Xiaochuan, who are attending the G-20 summit, raised borrowing costs this year to head-off inflationary pressure. The fastest period of global growth since the early 1970s is encouraging companies to raise prices, prompting workers to demand higher wages.
The Fed raised its key rate 17 times before pausing in August at 5.25 percent amid signs growth was slowing. The ECB is poised to deliver its sixth increase in a year next month, taking its benchmark rate to 3.5 percent. Central banks in Japan, China, Australia and the U.K. may also raise rates.
The Fed will probably cut its target rate for overnight loans among banks to 5 percent in the second quarter of next year, according to the median of 83 economists' forecasts in a Bloomberg News survey early this month.
The dollar weakened today after a U.S. government report showed home construction tumbled to a six-year low last month. The dollar fell to 117.69 yen at 11:39 a.m. in New York from 118.21 late yesterday. It declined to $1.2824 per euro, from $1.2796 yesterday.
Growth Forecasts
The IMF forecasts the global economy will expand 4.9 percent next year after growing 5.1 percent this year, 4.9 percent last year and 5.3 percent in 2004 -- the longest period growth rates have held above 4 percent since the early 1970s.
De Rato said the IMF expects slower U.S. growth to be partly offset by faster expansion in Europe and Asia. There are risks that tight ``capacity and wage pressures could make inflation pick up,'' he said.
The U.S. economy, the world's largest, will rebound from a third-quarter slowdown and inflation will remain elevated through early next year, according to a survey of 85 economists by Bloomberg News from Oct. 30 to Nov. 9.
The world's second-largest economy, Japan, grew at twice the expected pace in the third quarter, spurring speculation the Bank of Japan may increase borrowing costs for a second time this year as soon as next month.
In Europe, the dozen-nation euro region is expanding at the fastest pace in six years, prompting investors to increase bets the ECB will keep raising borrowing costs next year.
`Accommodative'
De Rato said ECB rates are still ``accommodative,'' and with the economic upswing in Europe set to continue, monetary policy should be moved ``to a neutral situation.''
``We don't see the need in Europe for a restrictive monetary policy right now,'' he said. ``Of course, in due course we will see how things are moving.''
Economists including Gernot Nerb of the Munich-based Ifo institute say the ECB's ``neutral'' rate is around 3.5 percent.
In the U.S., ``most of the monetary stimulus, if not all, has been taken away'' and the Fed's future policy steps should be determined by data, de Rato said.
He dismissed concern that higher interest rates might hurt economic growth, saying ``monetary policy in most places pays the most to citizens if it's guided by inflation.''