Softer China CPI Boosts PBoC Easing Expectations for 2025 — TD Securities
China’s February 2025 CPI rose 0.3% year-on-year, the third consecutive month under 0.5%, with food prices down 1.2% and non-food inflation at 0.8%. TD Securities says the softer inflation profile sustains market expectations that the People’s Bank of China (PBoC) may pursue monetary easing through 2025 to support growth. Structural headwinds cited include excess manufacturing capacity, cautious consumer demand, stable low global commodity prices and technology-driven cost declines. TD Securities forecasts a possible 25bp cut to the reserve requirement ratio in Q2 2025 and modest policy rate reductions if inflation remains subdued. The analysis notes PBoC’s multi-objective mandate—price stability, growth and financial resilience—and its toolkit (RRR cuts, MLF adjustments, targeted lending). Currency implications: easing typically pressures the yuan but growth-supportive measures can offset weakness; past easing cycles (2015–16, 2020–21) saw initial depreciation then stabilization. Expected sectoral effects include cheaper financing for property, improved credit for manufacturing and positive equity/bond responses to easing expectations. TD Securities warns of trade-offs between growth support and financial stability. Market participants should monitor CPI prints, credit growth, PBoC guidance and global central bank divergence for impacts across FX, rates and equities.
Neutral
Softer Chinese CPI increases the probability of PBoC easing in 2025, which has mixed implications for crypto markets. Monetary easing can be bullish by improving liquidity and risk appetite—potentially supporting equities and higher-risk assets including crypto. However, easing also tends to weaken the currency (CNY), and currency depreciation or divergent global monetary policies can spur capital flow volatility and risk-off episodes that pressure crypto short-term. Historical parallels: China’s easing cycles in 2015–16 and 2020–21 showed initial currency weakness and market volatility followed by stabilization and resumed risk appetite. For crypto traders: in the short term expect heightened FX and cross-border capital flow volatility that can create trading opportunities and spikes in onshore/offshore yuan pairs and crypto-peg arbitrage. Increased liquidity and lower domestic rates may support higher risk asset allocations over months, but any aggressive easing raising financial stability concerns (credit expansion, property stress) could trigger risk-off moves. Monitor CPI releases, PBoC communications, credit growth and onshore/offshore CNY spreads. Watch correlation shifts between Chinese equities, yuan moves and major crypto assets (BTC/ETH) to time entries and hedges. Overall impact is mixed—potential supportive macro liquidity but also sources of volatility—hence categorized as neutral.