PBOC lowers USD/CNY reference rate to 6.7156 from 6.7180

At 6.7156, Thursday’s USD/CNY central rate set by the People’s Bank of China (PBOC) for the forthcoming trading session compares with the previous day’s fixing of 6.7180 and the Reuters estimate of 6.6783.

PBOC: Key Questions Answered

The People's Bank of China pursues 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). 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 exercises 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 main tools comprise a 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 use LPR changes to influence Chinese Renminbi exchange rates.

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

Private banks are permitted in China, with 19 operating in what remains a small part of the financial system. According to The Straits Times, the largest are digital lenders WeBank and MYbank, 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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