Oil price may dampen market progress: IMF

WASHINGTON (Reuters) - Record high oil prices could significantly dampen progress that has been made so far in calming financial markets, the International Monetary Fund's chief economist said on Friday.

Simon Johnson told Reuters in an interview that banks that suffered losses as a result of a U.S.-originated mortgage lending crisis have had greater-than-expected success in raising new money but he worried that progress could be undone by soaring energy costs.

"News from credit markets has been good and that is reassuring people," Johnson said, "I think though that we are worried the oil price increase, depending on what happens if oil prices stay at this level, will have significant dampening effects," he added.

Johnson said the large increase in oil prices since March, from about $100 a barrel to near $128 on Friday, not only hurt consumers but also affected inflation expectations and makes policy harder to manage.

While the IMF has long said that higher prices were driven by demand rather than supply constraints, Johnson said the sharp run up in prices to current levels reflected tightness of the oil markets.

Johnson said the U.S. tax rebate that is part of an economic stimulus package was "almost magical in terms of timing," but it was hard to know how much of that consumers would spend at the gas pump.

Earlier on Friday, Treasury Secretary Henry Paulson said there has been significant progress in calming financial markets since the acute turmoil of March, but he too urged banks to keep raising new capital so they can continue lending.

Johnson said the rise in stock markets reflected banks' success in raising capital. Still, he said, the Federal Reserve's senior loan officers' survey indicates banks may be tightening or reluctant to lend to many customers.

"I don't know if (markets) have fully absorbed or thought about the less good news," said Johnson, adding that the IMF's last forecast in April for the United States and global economy "remained pretty much unchanged."

The IMF's World Economic Outlook released on April 9, the fund's twice-yearly health check of the world economy, said the U.S. economy was headed for recession this year.

It put world growth at 3.7 percent in 2008 after revising down its forecast twice in four months from 4.1 percent in January.

Asked whether he felt more optimistic about the outlook for the U.S. and global economies since the April forecast, Johnson said, "Roughly, we'd stick with what we've got".

The IMF plans to update its forecast in July.

"Quite a few people think there is a faster recovery in 2009 than we do, but I don't think we have seen anything to really give us a decisive indication which way that is going to come out," said Johnson.

He said the IMF was closely following U.S. employment and housing figures for signs of a faster recovery in the United States economy, while also monitoring leading indicators in the euro zone and exports in emerging economies.

He said it was clear the U.S. housing market was still undergoing an adjustment.

"We're not calling it the bottom," said Johnson, who said earlier this month he plans to step down as the IMF's top economist and researcher on September 1 to return to teaching at the Massachusetts Institute of Technology.

Johnson said the IMF still held the view that the value of the U.S. dollar was on the "stronger side," and the recent rise in the currency reflected a somewhat more positive view of the U.S. economy.

(Editing by Leslie Adler, Gary Hill)