PBOC lowers USD/CNY reference rate to 6.7167 from 6.7188

The USD/CNY central rate for Tuesday’s upcoming trading session has been fixed at 6.7167 by the People’s Bank of China (PBOC). This compares with the previous day’s fixing of 6.7188 and the Reuters estimate of 6.6655.

PBOC: Key Questions Answered

What is the People's Bank of China's mandate?

Maintaining 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 the financial market.

How is the PBoC owned and managed?

State ownership by the People's Republic of China (PRC) means the PBoC is not regarded as an autonomous institution. Rather than the governor, it is the Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, who plays a key role in shaping the PBoC’s management and direction. At present, however, Mr. Pan Gongsheng holds both positions.

Which tools does the PBoC use to implement policy?

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 the seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). China’s benchmark interest rate, however, is the Loan Prime Rate (LPR). Adjustments to the LPR directly affect market rates on loans and mortgages, as well as the interest paid on savings. The central bank can also influence the Chinese Renminbi’s exchange rates by adjusting the LPR.

Can privately owned banks operate in China?

Yes. With 19 private banks, China’s privately owned banking segment accounts for 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. It was in 2014 that China permitted domestic lenders funded entirely by private capital to operate in its state-dominated financial sector.

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