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IMF to trim global growth forecasts

IMF managing director Christine Lagarde gestures during her speech at a forum for the annual meetings of the IMF and World Bank Group at a Tokyo hotel Friday, July 6, 2012.

Itsuo Inouye/AP

The International Monetary Fund will trim its forecast for global growth this year, managing director Christine Lagarde said on Friday.

Without disclosing the size of the planned adjustment, Ms. Lagarde, speaking in Tokyo, said that the IMF's current growth forecast of 3.5 per cent, due to be updated in the middle of July, is "tilted to the downside."

"It is not an enormous variation, but it will be negative," she said.

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Ms. Lagarde pointed to near-simultaneous interest-rate cuts in China and Europe on Thursday, along with the Bank of England's boost to an asset-purchase program , as evidence of the fragility of the global recovery.

However, she expressed hope that the ECB's action on deposit rates in particular – cutting the interest rate on its overnight facility to zero – could help to "stimulate interbank lending, which has not been as active as it should be."

Ms. Lagarde also paid tribute to the fiscal consolidation efforts of Japanese prime minister Yoshihiko Noda, who has succeeded in passing a bill to raise the country's consumption tax in two stages, from 5 to 10 per cent, by 2015. "The IMF has always supported this measure," she said. "A reasonable rate of taxation applied to a very large base is a good, solid way to address fiscal consolidation needs."

On the yen, Ms. Lagarde expressed cautious support for direct government intervention to address a "moderately overvalued' currency.

"To the extent that macro-prudential measures have been exhausted, intervention is justifiable," she said.

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