Major governments and central banks at some point would need to stop a rapid decline in the US dollar, International Monetary Fund Managing Director Mr Horst Koehler said today.
In an interview with Handlesblattnewspaper, Mr Koehler also said that retreating inflation in the euro zone warrants an interest rate cut by the European Central Bank.
The sharp rise in the euro against the dollar to record highs yesterday is contributing to lower euro zone inflation and a mounting number of policymakers and market analysts are calling for an ECB rate cut at its June 5th meeting.
Mr Koehler declined to speculate at what price level action to stem the dollar's decline might be warranted, and that some depreciation was to have been expected.
"The devaluation is 16 per cent in trade-weighted terms. This is within bounds and should not come as a surprise given the large US current account deficit. But there is a point at which the accelerating depreciation of the dollar demands that governments and central banks act together," he said.
"I will not speculate about where that point is," he added.
Asked whether the ECB should cut rates given receding inflationary pressures, Mr Koehler said: "Yes."
For the Group of Eight meeting in France this weekend, Koehler said he would like to see governments deliver three important messages - economic policies are firmly directed toward growth, they are working to conclude the Doha trade round by 2005, and that they will open their markets to developing countries and dismantle export subsidies.