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Oil spike will hit growth: IMF

April 08, 2005 10:15 IST

International Monetary Fund chief Rodrigo Rato has warned that any further sharp increases in oil prices may have "more serious" effects on global growth and inflation.

The oil market will remain vulnerable to shocks with supply and demand remaining in balance at best and with limited prospects for building spare capacity, Rato said in his speech on "Sustaining Global Growth and Stability - The Role of the IMF" at Georgetown University in Washington ahead of the annual spring meetings of the IMF and the World Bank in mid-April.

The impact of record-high oil prices on global growth and inflation had so far been "manageable", he said.

"Oil-producing and consuming countries need to work together to ensure oil market stability through strengthening energy conservation, reducing obstacles to investment and improving data transparency."

He also warned that the poor state of US finances coupled with rising interest rates and high oil prices are a menace to global growth. But it is not for the US government alone to rebalance the world economy.

Europe and Japan must do more to prevent growth from being "unduly dependent on the United States and China".

Rato said, "A sharp increase in US interest rates, for instance, prompted by a rise in inflationary expectations or weaker demand for US securities would adversely affect the (global) expansion and lead to a significant deterioration in emerging market financing conditions."
BS Banking Bureau in Mumbai