MILAN (Reuters) - Financial markets are not experiencing a “deep crisis” but only turbulence, and central banks are managing the crisis well, International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview with Italian daily Il Sole 24 Ore.
“There is no deep crisis on the markets,” Strauss-Kahn was quoted by the paper as saying.
“Central banks in the United States and Europe did the right thing, but from one week to the other, there are ups and downs because maybe the markets expected one thing from the banks and then what they expected did not happen. But until now the crisis has been very well managed.”
The IMF last week praised global central banks’ coordinated efforts to address the credit crunch, and said monetary policy needed to remain flexible.
The U.S. Federal Reserve, in a concerted announcement with the European Central Bank, the Swiss National Bank, the Bank of England and the Bank of Canada, said it planned to ease “elevated” short-term funding pressures by injecting cash to banks through auctions and up to $24 billion in currency swaps lines to the European and Swiss central banks.
The financial market upheaval has also left banks reluctant to lend to each other, forcing them to turn to short-term capital markets instead. Efforts by the central banks were aimed at boosting liquidity to ease that strain.
In his interview with the newspaper, Strauss-Kahn also said he expects a slowing down of the U.S. economy which will have an effect on Europe’s 2008 growth.
For the global economy “certainly there will be a slowdown,” he said, “but I would not say a recession.”
Regarding currencies, Strauss-Khan said “the euro is quite strong. In the last few weeks some currencies, like the euro, the Brazilian real and the Canadian dollar have sustained a greater share than they should have of the (US) dollar’s fall.”
Reporting by Mathias Wildt; Editing by Valerie Lee