China’s central bank launches swap facility to boost stock market

The establishment of the roughly $70.60 billion facility is part of a broader stimulus package introduced late last month by People’s Bank of China Gov. Pan Gongsheng to revive the country’s struggling economy.

At a press conference detailing the stimulus package, Pan said the swap facility would “significantly enhance these institutions’ ability to raise funds and increase stock holdings."

In a statement on Thursday, the PBOC said that eligible brokers and insurers can now pledge assets such as bonds, stock ETFs, and shares of companies listed on the CSI 300 index to obtain liquid assets like Treasury bonds from the central bank.

It added that it is now accepting applications and may expand the facility’s size in the future.

China’s stock market has experienced a roller-coaster ride since Pan announced the suite of stimulus that also included measures aimed at encouraging more home purchases and consumer spending.

The policy push spurred hopes for further government stimulus and a historic surge in stock prices, which was followed by a sharp decline on Wednesday after a state planner briefing fell short of market expectations.

In an effort to reassure investors, the government announced Wednesday that the Ministry of Finance will hold a press conference on Saturday to unveil countercyclical policies aimed at supporting the economy.

It remains unclear if the central bank’s latest move will help lift market sentiment, but experts and state media have recently said that the new tool won’t expand the money supply.

Chinese law prevents the PBOC from lending directly to nonbank financial institutions, and the swap mechanism can only boost these institutions’ financing capacity without providing them direct funds, the state-run China Securities Journal said Thursday morning.

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