PBOC lowers USD/CNY reference rate to 6.7147 from 6.7165

At 6.7147, Thursday’s USD/CNY central rate for the upcoming trading session has been set by the People’s Bank of China (PBOC), against the previous day’s fixing of 6.7165 and the Reuters estimate of 6.6596.

PBOC: key questions answered

The People's Bank of China pursues price 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). The central bank also seeks to carry out financial reforms, including opening up and developing China’s financial market.

State ownership shapes the PBoC’s leadership

As an institution owned by the state 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 exercises a key influence over the bank’s management and direction. At present, however, Mr Pan Gongsheng holds both positions.

The PBoC deploys a broad range of policy instruments

To meet its objectives, the PBoC draws on a wider range of monetary policy instruments than those used in Western economies. Its main tools comprise a seven-day Reverse Repo Rate (RRR), the Medium-term Lending Facility (MLF), foreign exchange interventions 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 rates for loans and mortgages, as well as the interest paid on savings. Altering the LPR also allows China’s central bank to influence exchange rates for the Chinese Renminbi.

Private banks operate within China’s state-dominated financial sector

China permits private banks and has 19 of them, accounting for only a small share of its financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest, backed by technology giants Tencent and Ant Group. In 2014, the country authorised domestic lenders funded entirely by private capital to operate within its state-dominated financial sector.

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