RBI needs to exit easy money policy in calibrated manner: Govt.

The Finance Ministry on Friday said the Reserve Bank needs to withdraw the easy money policy gradually and in a calibrated manner so as to ensure sustained economic recovery and contain inflationary expectations.

“The exit from the current expansionary policy stance has to be so calibrated that the recovery process is sustained and inflationary expectations remain well anchored,” the government said in its Mid-Year Review for 2009-10 which was tabled in the Parliament by Finance Minister Pranab Mukherjee.

The timing and the pace of the exit from accommodative policies should depend upon the strength of the recovery, it added.

Following the global financial meltdown in September 2008, RBI took a host of measures to make available liquidity to the fund-starved industry.

Later, with the economy showing signs of recovery and also inflationary pressures becoming evident, RBI in its October policy initiated the first phase of exit by raising statutory liquidity ratio (SLR), the portion of funds banks invest in government bonds, by one percentage point to 25 per cent and withdrawing some other steps.

With food inflation nearing 20 per cent in December and the second quarter growth rate touching 7.9 per cent, there are expectations that the RBI may tighten credit in its January review of the monetary policy.