IMF gloomy on growth, warns on inflation

By Alan Wheatley, China Economics Editor

TOYAKO, Japan (Reuters) - It is hard to know how far the global financial crisis still has to run, with the extent of further credit losses hinging on what happens to the U.S. housing sector, IMF chief Dominique Strauss-Kahn said on Wednesday.

"What is sure is that the consequences for the real (economy) sector of the financial crisis are still in front of us," Strauss-Kahn, the International Monetary Fund's managing director, said in an interview.

With sky-high food and oil prices adding to the economic pain caused by financial strains, Strauss-Kahn said the IMF was fairly pessimistic about global growth prospects this year and, especially, in 2009.

But he told a news conference later that softening growth was less of a threat than inflation, which he said was rampant in some countries.

"In developed countries, central banks have taken it into account and have the correct monetary policy stance. In emerging countries and some low-income countries, in some of them at least, inflation is out of control. That means monetary policy probably has to be tightened in coming weeks or coming months."

Strauss-Kahn said the lesson from the 1970s and 1980s was that inflation can last for years, or even decades, if central banks and governments choose the wrong policy settings.

"That's why it's very important today, and that's what the IMF is doing, to draw attention to this question," he said.

DOLLAR NEAR FAIR VALUE, YUAN TOO CHEAP