More can be done
But monetary policy easing by itself will not be sufficient to offset the downside growth risks in the region. Fiscal policy will also need to do some of the heavy lifting.
In this regard, it is only China that has been pro-active in utilising fiscal policy to support growth, while South Korea has announced only a marginally more expansionary fiscal policy with a supplementary budget amounting to 0.3 per cent of GDP.
The fiscal headroom for some economies like India and Malaysia is considerably smaller. In Indonesia, there is scope for an expansionary fiscal policy but this will be dependent on foreign investor appetite for additional bond issuance.
But just as expectations of Fed easing has provided a window for Asian central banks to ease policy, prospects for other major central banks like the European Central Bank and Bank of Japan to also provide additional monetary policy stimulus offers Asia’s fiscal authorities room to undertake a more expansionary fiscal policy.
The search for yield by investors looking to escape negative interest rates in Europe and Japan mean demand for Asian sovereign debt will be strong. Especially if the fiscal policy boost is also accompanied by economic reforms.
Khoon Goh is Head of Asia Research at ANZ