The IMF chief's announcement comes as the 185-nation financial institution faces criticism that it serves the interests of wealthy nations by trying to impose free-market practices.
It also follows this week's forced change of leadership because of scandal at the IMF's sister institution, the World Bank.
Rato informed the IMF executive board that he will not be able to serve the full length of his five-year term as managing director, the Washington-based multilateral institution said.
He "intends to leave the Fund in October following the conclusion of the 2007 annual meetings of the boards of Governors of the IMF and World Bank Group," the IMF said in a statement.
The statement quoted Rato's explanation of his decision to the board:
"I have taken this decision for personal reasons. My family circumstances and responsibilities, particularly with regard to the education of my children, are the reason for relinquishing earlier than expected my responsibilities at the Fund," Rato sa