PBOC raises USD/CNY reference rate to 6.774 from 6.7191

At 6.774, Thursday’s USD/CNY central rate for the forthcoming trading session has been set by the People’s Bank of China (PBOC), against the previous day’s fixing of 6.7191 and the Reuters estimate of 6.6797.

PBOC explained: frequently asked questions

The People's Bank of China promotes 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

State ownership by the People's Republic of China (PRC) means the PBoC is not regarded as an autonomous institution. Rather than the governor, it is the Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, who exercises key influence over the bank’s management and direction. At present, however, Mr Pan Gongsheng occupies both positions.

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), interventions in the foreign exchange market and the Reserve Requirement Ratio (RRR). China’s benchmark interest rate, however, is the Loan Prime Rate (LPR). Adjustments to the LPR directly affect borrowing costs for loans and mortgages in the market, as well as the interest earned on savings. The central bank can also influence Chinese Renminbi exchange rates through changes to the LPR.

Private banks operate within China’s financial system

Private banks are permitted in China, where 19 such institutions account for only a small share of the 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. China gave domestic lenders funded entirely by private capital permission to operate in its state-dominated financial sector in 2014.

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