The Reserve Bank of India may roll back expansionary policies following tangible signs of recovery and government's approval to financial consolidation.

However, the apex bank will take final decision after improvement in demand and more credit flow in the monetary system.

RBI Governor, Dr D. Subbarao, delivering the JRD Tata Memorial Lecture, organised by Assocham, reflected, "The current monetary and fiscal stance is not the steady state. The challenge for RBI is to maintain a comfortable liquidity situation while at the same time anchoring inflation expectations."

Expressing concerns over widening fiscal deficit due to more external borrowing, Mr. Subbarao feels that it could remain a challenge and may even produce next inflationary cycle. The fiscal deficit is likely to increase three times given to increase in government's borrowing announced in the union budget.