The proposed Basel III bank capital rules go in the right direction but need to be completed by a strengthening of banking supervision, the head of the International Monetary Fund said on Tuesday.

"There was an absolute need to remodel the rules of the financial sector... this, at the moment, is much more important than potential negative effects on growth that could come from the increase in regulation," Dominique Stauss-Kahn said in an interview in Italy's Il Sole 24 Ore.

But the IMF head said supervision is more important. "My worry is we have made progress on the rules front... but there is still a lot to do on the other questions".

Strauss-Kahn also said the economic crisis will not end until unemployment has been reduced substantially, Reuters reported.