IMF for 'serious' response to US recession risk

Written by Agencies | Davos (Switzerland), January 26: | Updated: Jan 27 2008, 00:25am hrs
The director general of the IMF called for a serious response to the risk of a US recession and encouraged fiscal stimulus programmes in some countries.

Speaking in Davos, the head of the International Monetary Fund, Dominique Strauss-Kahn said: "Whatever the answer is on a recession, what is clear is there will be a serious (US) slowdown and it needs a serious response."

The head of the IMF, which usually encourages reductions in public spending, indicated that there was room for fiscal loosening in some big countries and interest rate cuts.

"We cannot rely only on monetary policy," he said during a public debate about the world economy.

"Some countries are not in a situation to increase the

deficit, but other countries are in the position where there is some room for fiscal loosening," he added, declining to name the countries he had in mind.

On interest rates, he said that an expected economic slowdown would lead to falls in inflation which would allow some central banks to lower borrowing costs to boost the economy.

The US Federal Reserve has slashed interest rates aggressively, but the European Central Bank is resisting pressure from some European politicians to act because it remains concerned about inflation.

"There will probably by even more room (to lower rates) in the coming weeks or the coming months depending on the price of commodities and on the decreasing demand," Strauss-Kahn said.