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Fed, ECB rate rises appropriate-IMF's Camdessus

CANCUN (Mexico): Moderate interest rate increases in the United States and Europe this week were appropriate and are unlikely to hurt growth in Latin America, the head of the International Monetary Fund said on Thursday.

"There's no incompatibility between moderate rate hikes that have been announced and growth of more or less four percent that we have forecast in 2000 (for Latin America and the Caribbean)," IMF Managing Director Michel Camdessus said.

Camdessus was briefing reporters on the sidelines of a meeting of finance ministers from North and South America in the Mexican resort town of Cancun.

His comments came after the U.S. Federal Reserve bumped up short-term interest rates on Wednesday in an effort to contain inflation pressures in the record-breaking U.S. economy. On Thursday, the European Central Bank also raised short term rates.

Camdessus said that the U.S. rate rise had been necessary to prevent the economy from overheating. Postponing the widely-expected quarter-point increase in the key overnight federal funds bank lending rate would eventually have risked paralysing economic growth, he added.

"It could create a very dangerous situation whereby inflation gains strength and significantly higher interest rate hikes would then be needed to stop it," he said.

"I think this measure was necessary in the United States. It didn't seem to me to have the same degree of necessity in Europe, although I understand the reasons why they have moved," he added.

The ECB raised its key money market rate, the refinancing rate, by a quarter of a percentage point to 3.25 percent, helping the embattled euro to recover from recent lows.

The IMF has long advocated the need for tighter monetary conditions in the United States, which this month entered an unprecedented 107th month of uninterrupted economic expansion. The economy grew by a red-hot 5.8 percent annual rate in the last quarter of 1999.-Reuters