Dollar may need to weaken further: IMF economist

The International Monetary Fund's new chief economist said a further depreciation of the dollar may be necessary to help unwind imbalances in the global economy, according to excerpts of an interview published on Friday.
"There may have to be more exchange-rate depreciation for the US The federal deficit will have to be reduced and private savings will have to be increased," said the fund's Raghuram Rajan in an interview with the Far Eastern Economic Review.
Excerpts of the interview were published in the Wall Street Journal on Friday.
"In this era of globalisation, some element of international policy co-ordination is necessary," Rajan said.
"There will have to be more structural reform and growth in Europe and Japan. And there will have to be some exchange-rate flexibility in emerging Asian currencies, so the region starts absorbing more US goods."
The economist said that if all that came together, the world economy could have a "soft landing".
The dollar fell sharply against the euro and higher-yielding major currencies such as the Australian dollar and the British pound, in 2003 and it has started off 2004 on a weak note.
It has fallen less markedly against the yen as Japanese authorities have intervened in record amounts to buy dollars. Many Asian countries, including Japan, Taiwan, South Korea and Thailand, have sought to prevent their currencies from rising against the dollar for fear of derailing export-led recoveries.
The dollar, at 0915 GMT, was at 105.90 yen, down from 107.43 at the start of the year.
The euro, meanwhile, has risen to $1.2750 from $1.2541. The euro gained 20 percent on the dollar last year while the US currency fell 10 percent against the yen.
Rajan said there good reason for optimism in terms of business sentiment around the world. The US recovery was continuing while Asia, fuelled by strong growth in China, was also recovering and Japan may have turned the corner.
He said a Chinese revaluation would have both benefits and costs but that a fully floating currency would be a mistake at this point.
"The solution is to have a plan to move toward a more flexible rate," he said.