PBOC Nudges Yuan Fix Higher as Daily Reference Rate Edges Up

Key Moments

Daily USD/CNY Central Parity Setting

The People’s Bank of China (PBOC) set the USD/CNY central reference rate for Tuesday’s trading at 6.7804. This compares with the prior trading day’s official fixing of 6.7795 and a 6.7104 estimate reported by Reuters.

Mandate and Role of the PBOC

The stated monetary policy goals of the People’s Bank of China are to maintain price stability, including stability in the exchange rate, and to foster economic growth. The central bank is also tasked with driving financial sector reforms, with a focus on opening and developing China’s financial markets.

The institution is owned by the state of the People’s Republic of China, and is therefore not regarded as an independent body. The Chinese Communist Party Committee Secretary, who is nominated by the Chairman of the State Council, plays a central role in shaping the PBOC’s direction and oversight, rather than the governor alone. However, Mr. Pan Gongsheng currently holds both of these posts.

PBOC Policy Instruments and Benchmark Rates

The PBOC deploys a wide toolkit to pursue its policy objectives. Key instruments include the seven-day Reverse Repo Rate, the Medium-term Lending Facility, foreign exchange market operations, and adjustments to the Reserve Requirement Ratio.

The Loan Prime Rate is identified as China’s benchmark lending rate. Shifts in the Loan Prime Rate affect borrowing costs for loans and mortgages, as well as returns on savings. Through changes to this rate, the central bank can also influence the exchange rate of the Chinese renminbi.

Bank Ownership Structure in China

Private-sector participation in China’s banking system is permitted, with 19 private banks operating as part of the broader financial landscape. These institutions represent a relatively small share of the overall system. The largest private players are digital banks WeBank and MYbank, which are backed by Tencent and Ant Group respectively, according to The Straits Times.

In 2014, authorities allowed domestically funded lenders, fully capitalized by private capital, to operate within the predominantly state-controlled banking sector.