Speculation is high that the Federal Reserve may delay its widely-anticipated September rate hike on the back of fragility in global markets, but that may not be enough to halt the slide in Asia's stocks.
Instead, poliycmakers from South Korea to Singapore may resort to a combination of tinkering with taxes and lowering borrowing costs to temper frazzled nerves. During the past seven days, Japanese shares have lost 11 percent, the Shanghai Composite has tumbled 19 percent and the Australian dollar and Korean won are trading near six-year lows.
"We are going to need to see something more inspiring than the Federal Reserve holding-off on hiking rates ... We need to see something coordinated and specifically coming from Asia given this is where the concern is stemming from," said Chris Weston, chief strategist at IG Markets.
His comments came after Wall Street's sharp correction on Monday pushed market players including Barclays to delay calls for a U.S. rate hike from September to March 2016. The current risk-averse mood in markets is a reflection of a number of factors, including concerns over global growth, the slump in commodity prices, China's panicky stock markets and its recent currency devaluation. Higher rates in the U.S. would only further dim the allure of riskier Asian assets.
"Coordinated global efforts may be precisely what's required to back stop this frenzied capitulation from risk assets. But this does not mechanically mean that global central banks mindlessly ease policies just to placate markets," agreed Vishnu Varathan, senior economist at Mizuho Bank on Tuesday.
In China's case, monetary stimulus from the central bank isn't the sole remedy to calming jolted markets. Late on Tuesday, the People's Bank of China (PBoC) cut interest rates and lowered the reserve ratio requirement (RRR) for the second time in two months. The RRR is the amount commercial banks must set aside with the central bank, and a lower requirement typically prods banks to lend more.
But fiscal measures such as a prompt to commercial banks to increase liquidity to infrastructure projects could also help sentiment amid concerns of a hard landing, according to Weston. Data last week showed Chinese August factory sector activity contracting at its fastest pace in almost six and a half years.