PBOC lowers USD/CNY reference rate to 6.7138 from 6.7147

At 6.7138, Friday’s USD/CNY central rate for the forthcoming trading session, set by the People’s Bank of China (PBOC), compares with the previous day’s fixing of 6.7147 and the Reuters estimate of 6.6548.

PBOC: Key Questions Answered

The People's Bank of China Pursues Stability and Growth

Safeguarding price stability, including exchange rate stability, and supporting economic growth are the principal monetary policy goals of the People's Bank of China (PBoC). Alongside these objectives, China’s central bank seeks to carry out financial reforms, including opening up and developing the financial market.

The PBoC Operates Under State Ownership

As a state-owned institution of the People's Republic of China (PRC), the PBoC is not regarded as autonomous. Rather than the governor, it is the Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, who exerts a key influence over the bank’s management and direction. Both positions are currently held by Mr Pan Gongsheng, however.

The PBoC Draws on a Broad Range of Policy Tools

To meet its objectives, the PBoC employs a wider range of monetary policy instruments than those used in Western economies. These principally comprise the seven-day Reverse Repo Rate (RRR), the Medium-term Lending Facility (MLF), intervention in foreign exchange markets and the Reserve Requirement Ratio (RRR). China’s benchmark interest rate, however, is the Loan Prime Rate (LPR). Adjustments to the LPR directly affect market borrowing costs for loans and mortgages, as well as the interest earned on savings. Through LPR changes, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

Private Banks Account for a Small Share of China’s Financial System

Private banks are permitted in China, where 19 such institutions represent only a small proportion of the financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest, with backing from technology giants Tencent and Ant Group. Domestic lenders financed entirely by private capital were allowed to enter the state-dominated financial sector in 2014.

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