PBOC lowers USD/CNY reference rate to 6.7138 from 6.7147

For Friday’s trading session, the USD/CNY central rate has been set at 6.7138 by the People’s Bank of China (PBOC). This compares with the previous day’s fixing of 6.7147 and the Reuters estimate of 6.6548.

PBOC: Key Questions Answered

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

Safeguarding price stability, including exchange rate stability, and supporting economic growth are the principal monetary policy objectives of the People's Bank of China (PBoC). Its remit also includes pursuing financial reforms, such as opening up and developing the financial market.

How is the PBoC owned and governed?

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 has a key influence over the bank’s management and direction. At present, however, Mr Pan Gongsheng holds both posts.

Which key instruments 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), the Medium-term Lending Facility (MLF), intervention in the foreign exchange market 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 earned on savings. The central bank can also influence Chinese Renminbi exchange rates through changes to the LPR.

Can privately owned banks operate in China?

Yes. With 19 private banks, China’s private banking segment accounts for only a small part of its 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 permitted to enter China’s state-dominated financial sector in 2014.

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