Asia FX Talk - China signals more macro policy support in 2025

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G3:  US NFIB Small Business Optimism, Germany CPI, Italy industrial production, RBA policy decision

Asia: Philippine trade, China trade, Malaysia industrial production

Market Highlights

China’s Politburo has announced that it will adopt a “moderately loose” stance for monetary policy in 2025, marking a major shift in its “prudent” stance since 2011. The Politburo has also signalled for looser fiscal policy, as it pledged to be “more proactive”. Chinese officials have also pledged to boost private consumption, as well as stabilize the country’s property and equity markets.

The latest signal for more macro policy stimulus in 2025 has come at a time when headline inflation remained subdued, rising just 0.2%yoy in November, reflecting weak domestic demand. China will also brace for potential US tariff hikes early next year. The last time when a “moderately loose” monetary policy stance was adopted was from November 2008 to 2010, amidst the Global Financial Crisis. During that time, the government launched a huge fiscal stimulus to support growth. Other key highlights from the Politburo meeting include pledging to push for tech innovation, building a modern supply chain, increasing market access, and stabilising foreign investors and trade. The annual Central Economic Work Conference (CEWC), which will craft economic priorities in the year ahead, will hold its meeting from 11-12 December. The latest politburo statement has raised market expectations for China’s GDP growth target to be set at around 5% again in 2025.  

Regional FX

Asian currencies had a mixed performance against the US dollar on Monday’s session. KRW (-0.6%) led losses in the region, amid ongoing domestic political uncertainty. This was followed by PHP with a 0.5% decline. Meanwhile, THB rose sharply by 0.8%, amid a pickup in gold prices and possibly due to seasonal factors. But THB gains may not last, given potential US tariff hikes in early 2025, slower fed rate cuts, and government pressures for a lower policy rate. CNY rose only by 0.2%, despite China’s Politburo signalling for bold stimulus in 2025, reflecting still cautious market sentiment towards China’s economic outlook next year. Meanwhile, India appointed career bureaucrat Sanjay Malhotra as the new RBI governor, replacing Shaktikanta Das. The appointment comes at a time when the Indian rupee is at its weakest level against the US dollar while domestic growth has slowed, complicating the monetary policy outlook.