PBOC raises USD/CNY reference rate to 6.7180 from 6.7150

The USD/CNY central rate is set at 6.7180 for the forthcoming trading session by the People’s Bank of China (PBOC) on Wednesday. This compares with the previous day’s fixing of 6.7150 and the Reuters estimate of 6.6811.

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). Its remit also includes pursuing financial reforms, such as 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 who exerts a key influence over the bank’s management and direction. The secretary is nominated by the Chairman of the State Council. Mr Pan Gongsheng currently occupies both posts, however.

The PBoC Uses 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), foreign exchange intervention 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, alongside the interest paid on savings. Such adjustments also allow China’s central bank to influence the exchange rates of the Chinese Renminbi.

Private Banks Form a Small Part of China’s Financial System

Private banks are permitted in China, where 19 such institutions account for only a small part of the financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest, with backing from technology giants Tencent and Ant Group. China began allowing domestic lenders funded entirely by private capital to operate within its state-dominated financial sector in 2014.

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