IMF Economist: Global Rate Cuts Were Step In Right Direction

Oct.08, 2008 in Market Outlook

WASHINGTON (Dow Jones)–Coordinated rate cuts were a “step in the right
direction,” but additional cooperation is needed to deal with the financial
crisis, the International Monetary Fund’s chief economist said Wednesday.

“More may be needed,” Olivier Blanchard said in a press conference to discuss the
fund’s World Economic Outlook released earlier Wednesday.

But he said “most of the effort” by global policymakers should be focused on
shoring up financial markets, not so much monetary policy. Fiscal policies can
also provide support, he said.

Saying global financial markets are in the grips of the “most dangerous shock”
since the 1930s, the IMF cut its forecasts for 2008 and 2009 and warned of
“considerable downside risks” to the outlook.

The IMF now expects the world economy to grow at a 3.9% pace in 2008, down from
the last estimate of 4.1% in July. It also cut the 2009 forecast from 3.9% to 3%,
which would be the weakest level since 2002 and around the threshold of what the
IMF considers a global recession.

The report was completed before a wave of coordinated rate cuts by the U.S.
Federal Reserve, European Central Bank, the Bank of England and other major
central banks earlier Wednesday. But the IMF suggested in the report that the
Fed, ECB and Bank of England should consider easing.

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