China’s central bank launched a ¥500 billion ($70.6 billion) funding scheme to support the stock market, allowing financial institutions to use assets as collateral for liquidity.
Today, the People’s Bank of China (PBOC) announced establishing a ¥500 billion ($70.6 billion) funding initiative to assist the Chinese capital market. Using their existing stock holdings as collateral enables financial institutions, including insurers, mutual funds, and intermediaries, to access liquidity to purchase shares.
To acquire liquid assets such as treasury bonds and central bank bills, participants in the swap facility may utilize assets such as bonds, equity ETFs, and holdings in CSI 300 Index constituents as collateral.
Governor Pan Gongsheng stated on Sept. 24 that the program could be expanded with additional funding cycles if the initial implementation is successful. He observed that the PBOC contemplated adding an additional ¥500 billion, which could result in a total liquidity injection exceeding ¥1 trillion.
The action is a reaction to the Chinese stock market’s extended declines. In the face of broader economic challenges, China’s central bank endeavors to enhance investor confidence.
A series of monetary easing measures were introduced by the PBOC in late September, following which the scheme was initially announced. According to the central bank, the required reserve ratio for banks will be reduced by 0.5%, from 7% to 6.5%. The seven-day reverse repo rate will also be reduced from 1.7% to 1.5%.
The market sentiment responded favorably to the initial announcement of the scheme and the measures, as evidenced by the significant rallies in Chinese stock indices. The anticipated monetary stimulus also stimulated the stock markets of the United States and Europe.
The news of China’s pandemic-level stimulus program and recent US Fed rate cuts caused Bitcoin to break its downtrend on the crypto markets. Nevertheless, Bitcoin experienced a decline earlier this week due to China’s failure to implement any new stimulus measures during a recent briefing.
Concerns regarding Middle East conflicts and profit-taking also influenced the market downturn. Analysts caution that the most recent Chinese stimulus may not maintain its momentum compared to previous cycles.
Nevertheless, Bitcoin is anticipated to experience a significant increase in value due to China’s official commencement of its plan. This is because, historically, comparable measures have resulted in price increases exceeding 100%. QCP Capital predicted that additional stimulus from China could potentially bolster bullish sentiment in cryptocurrency and other risk assets.
CoinGecko data indicates that Bitcoin is currently trading at approximately $60,800, a very minor increase from the previous two hours.
The September Consumer Price Index (CPI) report, which is scheduled to be released tomorrow at 8:30 AM ET, is the current focus of crypto traders in search of prospective price movement cues.
The core CPI is anticipated to increase by 0.2% monthly and maintain a year-over-year increase of 3.2%, while the year-over-year inflation rate is anticipated to decrease to 2.3% from 2.5% in August.
