PBOC lowers USD/CNY reference rate to 6.7152 from 6.7174

At 6.7152, 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 6.7174 and a Reuters estimate of 6.6756.

PBOC explained

The People's Bank of China pursues price stability and growth

Safeguarding price stability, including exchange rate stability, and supporting economic growth are the main 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 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 exerts a key influence over the bank’s management and direction. At present, however, Mr Pan Gongsheng occupies both positions.

The PBoC employs 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), interventions in the foreign exchange market 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. The central bank can also influence Chinese Renminbi exchange rates through changes to the LPR.

Private banks account for a small share of China’s financial system

China permits private banks and has 19 of them, representing only a small part of its financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest private banks, backed by technology giants Tencent and Ant Group. Domestic lenders funded entirely by private capital were allowed to enter China’s state-dominated financial sector in 2014.

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