Global financial turmoil is deepening the slowdown, with the pace of economic activity not expected to pick up substantially before the latter part of 2009. The central bank has already cut its policy rate in reaction to the crisis in financial markets.
Monetary policy should remain biased towards easing in the near term. Further ahead, assuming a relatively trouble-free recovery from the financial crisis, the policy stance should tighten. Consideration of an increase in the fiscal spending ceiling should be put on hold in light of the increased economic uncertainty. Weaker GDP growth and completion of the schedule of tax cuts imply that revenue increases will be low in 2009 and 2010. The impact of the global credit crunch on the economy could be more pronounced than projected.