Mr de Rato said global imbalances were a threat

Despite a slowdown in the US and woes in its housing market, global risks were "a little lower than they were six months ago", said Rodrigo de Rato.

But he added that world policymakers should remain vigilant.

Last week an IMF report said that events in the US had caused just a small blip on world economic activity.

'Imbalances'

Speaking at the Peterson Institute for International Economics in Washington, Mr de Rato said that central banks were managing to tame inflation, helped by lower oil prices.

However it was "global imbalances" which were the biggest threat to long-term stability, he said.

These included skewed trade and investments which had led to some "questionable lending and borrowing".

Mr de Rato also believes that an over-reliance on US consumers to support other economies is unsustainable in the long term.

"If political leaders don't think that global imbalances are important, or are complacent about financial market developments, it is more difficult to persuade them to take the actions needed to sustain global prosperity," he said.

However Mr de Rato also said that the IMF had told China - both publicly and privately - that it would benefit from a more flexible exchange rate.

'5% growth'

Beijing has been accused of undervaluing its currency, making Chinese exports artificially competitive on the global market.

In February, finance ministers and bankers from the Group of Seven (G7) leading industrial nations have renewed pressure on China to relax controls over its currency.

Earlier Mr de Rato predicted that global growth for 2007 would be close to 5%, helped by the surging economies of the likes of China and India and the recovery in Japan.

Since the turn of the year, problems with the sub-prime mortgage market have further fanned fears about a slump in US house prices, and worries of its impact on the world's largest economy.