JAKARTA (TheInsiderStories) – People’s Bank of China (PBoC) setting up new swap facility to provide liquidity for commercial banks, the central bank said t is said in a written statement today (01/25).
The Central Bank Bills Swap (CBS) aimed to improve the liquidity of banks’ perpetual bonds (including capital bonds without fixed terms) and to encourage banks to replenish capital through perpetual bond issuance.
It said, primary dealers of open market operations can trade their perpetual bonds issued by qualified banks for central bank bills with the PBoC. And banks’ perpetual bonds with ratings at no lower than AA will be included as qualified collateral for medium-term lending facility, targeted medium-term lending facility, standing lending facility, and central bank lending
The move comes two days after Bank of China, the state-owned commercial bank, said it plans to issue as much as RMB40 billion (US$5.89 billion) in perpetual bonds, the first ever issuance of such debt by a lender in the country to improve its capital buffers.
On Wednesday (01/23), the central bank also injected 257.5 billion yuan into the money market through a targeted medium-term lending facility, a new tool it created last month.
Previously, on Jan. 16, PBoC also put the largest amount of money RMB560 billion (US$82.84 billion) through open market operations to stimulate the slowdown economy. Recently the country’ economy moved lackadaisically, impacted by its trade war with the United States.
In open market operations, PBoC injects the fresh funds through a seven-day reverse bond repurchase agreement RMB350 billion and RMB220 billion through a 28-day reverse repo. A repo of RMB10 billion will be matured today.
PBoC stated, that the injection of funds was done to maintain adequate bank liquidity and anticipating the high funding needs during the peak tax payment season. “Overall liquidity in the banking system has dropped dramatically,” said the central bank.
Prime Minister Li Keqiang has stated, China must prepare for difficulties this year as the economy faces increasing pressure. The country aims to keep economic growth within a reasonable range in 2019, he added.
To that, Li revealed, the government will boost investment in public services and infrastructure and expand consumption. Furthermore, the National Development and Reform Commission (NDRC) said in a statement, China will strengthen monitoring of its economic situation and improve its economic policies.
The world’s second-biggest economy slowed in 2018 caused the trade war, painful long-term structural adjustments to transition, and exports unexpectedly fell the most in two years in December.
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