Well-timed exit strategy urged

The economic rebound of Asian economy has raised the question that when the Asian governments should go with their exit strategies -- a time to unwind previous policy and regulatory guidelines.

ADB president Haruhiko Kuroda said in January that each country needed to calibrate policy adjustments to individual situations to cushion the region from future shocks.

"We have to be careful about this because the impact of the global economic crisis on developing Asia was not uniform and was diverse," he said.

He warned that recovery could falter if decision makers reduce the stimulus too soon, but doing it too late may lead to higher inflation, unsustainable government deficits and large debts.

"While we believe developing Asia is leading the global economic recovery, it is too early to relax vigorous efforts to restore demand and stabilize financial systems," he said. "In particular, exit strategies for fiscal stimulus must be carefully timed."

China took an early step with the central bank's decision to raise the deposit reserve requirement ratio by 0.5 percentage points from Jan. 18, the first increase since June 2008.

Kuroda said China's move would help cool down the overheating real estate sector but will not undermine the country's strong recovery. "It appears quite appropriate," he said.

However, the move did not indicate a shift in the Chinese government's "moderately" loose monetary policy, said Zuo Xiaolei, economist with the China Galaxy Securities. It reflected the flexibility the government vowed in its policies to handle new circumstances in 2010, she said.

China's central bank said at its annual work conference that the 2010 monetary policy aimed to sustain a stable and relatively fast rate of economic growth and stabilize prices and effectively manage inflation expectations. It also vowed to add flexibility of its policy.

The People's Bank of China (PBOC), the country's central bank, announced Friday it will raise the deposit reserve requirement ratio for Chinese financial institutions by 0.5 percentage points from Feb. 25 this year.

The move targets the "comparatively loose liquidity" while keeping the "moderately easy" monetary policy unchanged, an unnamed PBOC spokesman said.

For Manu Bhaskaran, director of Centennial Asia Advisor, Centennial Group, the time to unwind monetary policies should be "sooner rather than later", given the stronger than expected economic growth in the region.

"It was fine to talk about the plan for exit program, but not to actually implement it, " Bhaskaran said in ADB regional forum on the impact of the global economic and financial crisis.