PBOC raises USD/CNY reference rate to 6.7150 from 6.7146

At 6.7150, Tuesday’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 6.7146 and the Reuters estimate of 6.6489.

PBOC: Key Questions Answered

The People's Bank of China pursues stability and growth

Maintaining 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

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 exerts a key influence over the PBoC’s management and direction. Both positions are currently held by Mr Pan Gongsheng, however.

The PBoC deploys a broad range of policy tools

To meet its objectives, the PBoC draws on a wider range of monetary policy instruments than those used in Western economies. Its principal tools 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 rates for loans and mortgages, as well as the interest paid on savings. The central bank can also influence the exchange rates of the Chinese Renminbi by adjusting the LPR.

Private banks operate within China’s financial system

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, with backing from technology giants Tencent and Ant Group. Domestic lenders funded entirely by private capital were first permitted to operate in China’s state-dominated financial sector in 2014.

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