PBOC raises USD/CNY reference rate to 6.7168 from 6.7156

At 6.7168, Friday’s USD/CNY central rate for the forthcoming trading session is set by the People’s Bank of China (PBOC), compared with the previous day’s fixing of 6.7156.

PBOC: Key Questions Answered

The People's Bank of China’s role and objectives

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

State ownership shapes the PBoC’s leadership

As a state-owned institution of the People's Republic of China (PRC), the PBoC is not regarded as autonomous. Key influence over its management and direction rests with the Chinese Communist Party (CCP) Committee Secretary rather than the governor. The Secretary is nominated by the Chairman of the State Council. Mr Pan Gongsheng currently occupies both the Secretary and governor posts, however.

The PBoC deploys 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. Its principal 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 feed directly into market borrowing costs for loans and mortgages, as well as the interest paid on savings. The central bank can also use LPR changes to influence the exchange rates of the Chinese Renminbi.

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

Private banks are permitted in China, where 19 such institutions account for only a small share of the 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. China began allowing domestic lenders funded entirely by private capital to operate in its state-dominated financial sector in 2014.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights