PBOC lowers USD/CNY reference rate to 6.7156 from 6.7180 previously

USD/CNY has a lower central rate for Thursday’s upcoming trading session, with the People’s Bank of China (PBOC) setting the fixing at 6.7156. This compares with the previous day’s fixing of 6.7180 and the Reuters estimate of 6.6783.

PBOC: Key Questions Answered

What is the role of the People's Bank of China?

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). Alongside these objectives, China’s central bank seeks to carry out financial reforms, including 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 that the PBoC is not regarded as an autonomous institution. Rather than the governor, it is the Chinese Communist Party (CCP) Committee Secretary who has a key influence over the central bank’s management and direction. The Secretary is nominated by the Chairman of the State Council. 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 a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), interventions in the foreign exchange market and 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 by adjusting the LPR.

Can privately owned banks operate in China?

Yes. There are 19 private banks in China, 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, backed by technology giants Tencent and Ant Group. It was in 2014 that China permitted domestic lenders funded entirely by private capital to operate in its state-dominated financial sector.

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