PBOC lowers USD/CNY reference rate to 6.7162 from 6.7180

At 6.7162, Monday’s USD/CNY central rate for the forthcoming trading session, set by the People’s Bank of China (PBOC), compares with Friday’s fixing of 6.7180 and the Reuters estimate of 6.6691.

PBOC: Key Questions Answered

The People's Bank of China Pursues Price 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.

State Ownership Shapes the PBoC’s Governance

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, nominated by the Chairman of the State Council, who exerts a key influence over the central bank’s management and direction. Both positions are currently held by Mr Pan Gongsheng, 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), 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 feed directly into market borrowing rates for loans and mortgages, as well as the interest paid on savings. Changes to this rate also allow China’s central bank to influence the exchange rates of the Chinese Renminbi.

Private Banks Operate Within China’s State-Dominated Financial Sector

China permits private banks and has 19 of them, accounting for only a small part of its financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest private banks, with backing from technology giants Tencent and Ant Group. Domestic lenders funded entirely by private capital were allowed to enter the state-dominated financial sector in 2014.

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