Credit Squeeze May Help Stability Long Term: De Rato

Source : The Business Times, September 10, 2007

Mr de Rato said the credit squeeze was a 'serious crisis' that was still unfolding with a high degree of uncertainty but noted its effect would be countered by the current strength of the world economy

LONDON - The repricing of risk in international markets may be painful in the short term but could bring benefits for stability in the longer run, says IMF managing director Rodrigo de Rato.

'This reckoning is probably a welcome one but it does not mean that it will be a painless one,' Mr de Rato said in an interview published in Monday's Financial Times.

He said the credit squeeze was a 'serious crisis' that was still unfolding with a high degree of uncertainty but noted its effect would be countered by the current strength of the world economy.

In an interview from the Ambrosetti forum in Cernobbio, Italy, Mr de Rato said regulators needed to learn lessons from the incorrect pricing of risk that unleashed the US sub-prime mortgage crisis.

Mr de Rato also said that he expects downward revisions to growth in the United States, Europe and Japan due to credit market turmoil.

'How this will affect the US economy is something we are looking at,' Mr de Rato told reporters. 'We also see consequences in Europe and in Japan, but more limited.'

On Friday, Mr de Rato said he expected the IMF to revise downwards its world growth forecasts for 2007 and 2008 because of the credit crisis. The IMF raised its forecasts at the beginning of the summer. -- REUTERS