PBOC Adjusts USD/CNY Reference Rate to 7.1788

On Tuesday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the upcoming trading session at 7.1788. This figure marked an increase from the previous day’s fixing of 7.1780. It’s worth noting that this rate also deviated from the Reuters estimate of 7.2630.

The PBOC plays a crucial role in China’s economic landscape. Its primary monetary policy goals are to maintain price stability, which encompasses exchange rate stability, and to drive economic growth. Additionally, the central bank is actively involved in implementing financial reforms, with a focus on opening up and developing the financial market.

Owned by the People’s Republic of China, the PBOC is not an autonomous institution. The appointment of the Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, significantly influences the bank’s management and strategic direction. Currently, Mr. Pan Gongsheng holds the positions of both CCP Committee Secretary and governor.

When it comes to policy tools, the PBOC has a diverse set at its disposal. Differing from Western economies, it utilizes instruments such as the seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions, and Reserve Requirement Ratio (RRR). Among these, the Loan Prime Rate (LPR) serves as China’s benchmark interest rate. Alterations to the LPR directly impact market loan and mortgage rates, as well as savings interest rates. Moreover, the central bank can influence the Chinese Renminbi’s exchange rate by adjusting the LPR.

In the Chinese financial system, private banks are permitted. As of now, there are 19 private banks in the country, although they represent a relatively small portion of the overall financial sector. According to The Straits Times, the largest private banks are digital lenders WeBank and MYbank, which are supported by tech giants Tencent and Ant Group respectively. In 2014, China took a significant step by allowing domestic lenders fully funded by private capital to operate within the state – dominated financial industry.