The liquidity crunch on global financial markets is easing and the situation on credit markets is returning to normal, International Monetary Fund Managing Director Rodrigo Rato said on Tuesday.

"We have to recognise that the evolution of recent days is moving towards normalisation," Rato told a news conference in Moscow. "Credit markets are easing," he added.

Rato said, however, that the current turbulence on financial markets was "serious" and would take some time to resolve.

"Events on financial markets are still unfolding and it will be some months before the extent of banks' and investors' losses will become clear," Rato said.

 "In this context of a lack of confidence and state of turbulence we welcome the actions of central banks to maximise liquidity," he said.

Rato said the economic impact of the liquidity crisis on the world economy was still uncertain. "It will probably be felt more in 2008 and probably the most affected country will be the United States."   Rato said the credit crisis occurred against the background of a strong world economy, strong balance sheets of financial institutions and companies.

"Although the crisis is serious, I think the impact on the world economy will be modest," he said.
Rato, speaking in Moscow after meeting Finance Minister Alexei Kudrin, urged Russia, the world's No.2 oil exporter, to liberalise exchange rate and tighten fiscal policy. - Reuters