Market turmoil could intensify, says a top IMF exec

RIO DE JANEIRO (Reuters) - Turmoil in financial markets could still intensify, a top IMF official warned on Friday, urging central banks to keep providing liquidity to ensure markets function smoothly.

International Monetary Fund Deputy Director Murilo Portugal also said, in prepared remarks to be delivered at a banking conference, that while "direct spillover" into emerging markets from the credit crunch had been largely contained, they would not escape the impact of a global economic slowdown.

While he said risks surrounding the global economic outlook were "tilted to the downside," Portugal added that policy-makers shouldn't lose sight of inflationary risks, particularly given soaring prices for commodities.

"Global imbalances" were another danger he cited for the world economy, in particular the U.S. current account gap, which is likely to remain large even though it is projected to decline to 4.8 percent this year of gross domestic product from an estimated 5.7 percent in 2007.

The U.S. current account balance of payments deficit will likely stay high unless there are major changes in exchange rates, he said.

"Monetary policy should be the first line of defense" for economic policy-makers trying to tackle slowing growth while remaining vigilant about inflation, he said.

(Reporting by Christian Plumb; Editing by Walker Simon)