The IMF's chief said Friday the Washington-based body believes that the level of the Chinese currency, the yuan, should reflect the strength of the Chinese economy.

Rodrigo de Rato. [file]

A stronger yuan would help China achieve sustained economic growth, bolster domestic consumption and make investment more efficient, Rodrigo de Rato, managing director of the International Monetary Fund, told Asian journalists during a satellite-linked press conference from Washington.

De Rato also said some inflationary pressures are building in India, with the country having enjoyed above-trend growth of 8 percent in the last three years.

His comments come after the Reserve Bank of India said earlier this week the outlook for inflation is "clouded," prompting talk of a rate hike in October.

In July, the Indian central bank said it expected inflation in the fiscal year ending in March 2007 to average between 5 percent and 5.5 percent.

More broadly, de Rato said: "Domestic demand is one of the areas where we see scope for more balanced growth in Asia."

The region's business environment needs to become more attractive with more efficient financial integration and to attract more investment, he said.

The world economy needs to adjust to high oil prices and to reassess policies such as subsidies, de Rato also said.

That will also require better safety nets as well as social and labor reforms to help individuals cope with the changes, he said.

De Rato was speaking two weeks before the IMF convenes in Singapore for its annual meeting at which it is expected to discuss reforms at the multilateral body as well as consider macroeconomic issues in rapidly developing economies such as India and China.