DUBAI, Sept 24 - International Monetary Fund Managing Director Horst Koehler said on Wednesday he expected foreign exchange markets to settle down after volatile trading in the wake of a Group of Seven call for flexible currencies. "I am quite happy about this outcome of ministers' discussions, but I don't think we should now over-interpret the first reaction of markets," Koehler told the closing news conference of the IMF's annual meeting in Dubai. "I expect markets to calm down again," he added. G7 finance ministers meeting on the sidelines of the IMF gathering issued a statement on Saturday pressing countries to loosen currency regimes -- sending world markets reeling.
Koehler said that while he also believed looser currencies would play a role in adjusting global imbalances, countries shouldn't be bullied into shifting policy. "I do think it was appropriate, that in the context of the discussion about what has to happen (economically), that obviously global imbalances unwind orderly," he said. He added that one solution to these imbalances was "stronger domestic growth in regions out of the U.S." "There was also an understanding, and I share this view, that exchange rates can also contribute to this orderly adjustment. But certainly, the role of the exchange rate is nothing we should push ahead through public trumpeting and organising pressure," Koehler added.
Usually G7 finance ministers stop at saying they will monitor exchange markets closely and cooperate as appropriate. The dollar took a sharp knock from the new wording -- taken as a dig at Japan and China for government involvement in currencies -- falling to a three-year low versus the yen this week.//www.reutres.com