IMF Chief Says USD Is Undervalued

International Monetary Fund Managing Director Rodrigo Rato said the U.S. dollar is "undervalued", according to The Financial Times.

"Right now the dollar is undervalued" on many measures used by the IMF to evaluate currencies, said Rato according to the report. He added that the U.S. currency was "certainly overvalued a few years ago." The remarks by Rato, who hands over the leadership of the IMF to Dominique Strauss-Kahn at the end of this month, follow a sharp drop in the dollar against the euro and some other freely floating currencies in the aftermath of the credit squeeze and Federal Reserve interest rate cut, according to the report. Rato said these financial and economic developments create a "new scenario for global imbalances" that policy makers need to "keep an eye on," said the report, which was seen on the FT's Web site Monday. Rato warned against excess volatility in currency markets - a standard IMF mantra, but one that takes on added significance in times like these, the report said. "Sudden movements in the currency markets are not what we need," he said, according to the FT. Rato also said that, "independent of the value of the dollar," it would be "in the interest of China" to adopt a more flexible exchange rate to help it manage its domestic economy and that this case is "becoming stronger." The outgoing IMF chief also hinted at unease about the Japanese yen, which remains weak in part because of ultra-low interest rates, the report said. "Normalization of monetary policy in Japan is an important medium-term objective," he said, according to the report.