PBOC raises USD/CNY reference rate to 6.7171 from 6.7162

The USD/CNY central rate for Tuesday’s trading session has been set at 6.7171 by the People’s Bank of China (PBOC), against the previous day’s fixing of 6.7162 and a Reuters estimate of 6.6731.

PBOC: Key Questions Answered

The People's Bank of China’s role

Safeguarding price stability, including exchange rate stability, and supporting economic growth are the main monetary policy goals of the People's Bank of China (PBoC). The central bank also seeks to carry out financial reforms, including opening up and developing China’s 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. Key influence over its management and direction rests with the Chinese Communist Party (CCP) Committee Secretary, who is nominated by the Chairman of the State Council, rather than with the governor. 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), foreign exchange interventions 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 costs for loans and mortgages, as well as the interest paid on savings. The central bank can also influence Chinese Renminbi exchange rates by adjusting the LPR.

Private banks operate within China’s financial system

China permits private banks and has 19 of them, representing only a small part 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 allowed to enter the state-dominated financial sector in 2014.

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