PBOC lifts USD/CNY reference rate to 6.7146 from 6.7138

At 6.7146, Monday’s USD/CNY central rate for the forthcoming trading session is set by the People’s Bank of China (PBOC), against Friday’s fixing of 6.7138 and the Reuters estimate of 6.6625.

PBOC Explained

The People's Bank of China pursues stability and growth

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). Financial reform is another objective for China’s central bank, including 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, nominated by the Chairman of the State Council, who holds a key influence over the PBoC’s management and direction. Both positions are currently held by Mr Pan Gongsheng, however.

The PBoC draws on a broad range of policy tools

To meet its objectives, the PBoC deploys a wider range of monetary policy instruments than those used in Western economies. Its principal tools are a 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 rates on loans and mortgages, as well as the interest paid on savings. The central bank can also influence the exchange rates of the Chinese Renminbi through changes to the LPR.

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

China permits private banks and has 19 of them, representing only a small fraction of its financial system. According to The Straits Times, digital lenders WeBank and MYbank are the largest private banks, backed by technology giants Tencent and Ant Group. Domestic lenders funded entirely by private capital were allowed to operate in China’s state-dominated financial sector in 2014.

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