PBOC lowers USD/CNY reference rate to 6.7167 from 6.7188

At 6.7167, Tuesday’s USD/CNY central rate has been set by the People’s Bank of China (PBOC) for the forthcoming trading session, against the previous day’s fixing of 6.7188 and the Reuters estimate of 6.6655.

PBOC policy and structure explained

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). Alongside these objectives, China’s central bank seeks to carry out financial reforms, 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 exerts a key influence over the PBoC’s management and direction. Both positions, however, are currently held by Mr Pan Gongsheng.

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 main instruments 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 rates charged on loans and mortgages, as well as the interest paid on savings. Adjusting this rate also allows China’s central bank to influence the exchange rates of the Chinese Renminbi.

Private banks operate within China’s financial system

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 begin operating in China’s state-dominated financial sector in 2014.

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