IMF chief Rodrigo Rato said the economic environment was "very benign," as the potentially harmful impact of record oil on output growth and inflation had been mitigated by low interest rates and the beneficial effects of globalization.

"We see the world economy growing faster than we expected in September," Rato said, referring to the IMF’s most recent World Economic Outlook, which predicted 2006 growth of 4.3 percent.

The IMF will publish its next outlook in April. Germany’s Handelsblatt newspaper reported last week that it would raise its forecast for global economic growth this year to 4.8 percent, citing excerpts from the IMF’s report.

"We see a recovery in Europe, not very acute but a recovery, and we see a more broad-based recovery in Japan," Rato said in an interview with Reuters in Equatorial Guinea late on Tuesday.

Rato, a former Spanish economy minister, welcomed China’s moves to allow market forces to influence the exchange rate of the yuan, but said Beijing needed to go further in liberalizing not just the currency but also its financial system.

The yuan has strengthened by 3.5 percent since China revalued the currency in July, but would have moved by closer to 4 or 5 percent according to the market, Rato said.

"They are opening their exchange rate to market forces. That is what we advised them to do and they should continue in that direction," Rato said. "They need to strengthen their banking system, and that is a big challenge."

The IMF welcomed Beijing’s aim of fostering domestic consumer demand, which Rato said would make the Chinese economy "more resilient, more flexible and able to absorb shocks".

"Given the importance of the Chinese economy, that will be healthy for the world economy," he said.

Beijing is seeking ways to lower domestic savings rates as high as around 40 percent, due in part to ordinary Chinese citizens’ concerns over lack of pensions and healthcare, Rato said.

In contrast, the IMF chief said he hoped the US Federal Reserve’s tightening of money policy would do more to make ordinary Americans aware of the need to save money.

"This year is going to be challenging for the budget in the US and probably we are going to see a resurgence of a deficit, which is not good news," Rato said.