China’s central bank on Thursday unveiled a new swap tool to enhance the liquidity of the stock market and “promote the healthy development of the capital markets”, with an initial size of 500 billion yuan (US$70.7 billion).
The new Securities, Funds and Insurance companies Swap Facility would enable qualified securities, mutual funds and insurance companies to swap government bonds or central bank bills with their holdings of corporate bonds or stock exchange-traded funds as collateral, according to a statement released on the website of the People’s Bank of China.
The central bank would begin to accept applications immediately and the size could be further expanded, it added.
The move is widely believed to increase non-banking financial institution’s ability to invest in China’s stock market, which has turned volatile in the past two weeks because of market speculation over a strong government stimulus package.
However, it would not mean an increase of money supply and the law forbids the central bank from lending to non-banking institutions, the state-backed China Securities Journal reported.
On Thursday, the SSE Composite Index opened up 0.58 per cent, while CSI300 – which tracks blue chips in Shanghai and Shenzhen – rose 0.6 per cent.
Read More: China unveils US$70 billion swap tool to enhance stock market liquidity