PBoC vows to maintain loose monetary policy, keep Chinese Yuan stable

China’s central bank plans to strengthen counter-cyclical adjustments to support the economy.
Monetary policy will remain appropriately loose, with financing and money supply growth aligned with economic targets.
Authorities aim to keep the Chinese Yuan exchange rate broadly stable at a reasonable and balanced level.

Ghiles Guezout FXStreet

The People’s Bank of China (PBoC) said on Thursday that it will step up counter-cyclical adjustments and continue to implement an “appropriately loose” monetary policy, according to Reuters.

China’s central bank said it will seek to keep the growth of social financing and money supply in line with economic growth and price-level targets.

On the foreign exchange front, the PBoC reiterated its intention to keep the Chinese Yuan (CNY) exchange rate broadly stable at a “reasonable and balanced level.”

The central bank also said it will guide large banks to play a leading role in serving the real economy while strengthening their capital. The PBoC added that it will continue to advance the reform of its monetary policy operational framework.

PBOC FAQs

What does the People's Bank of China do?

The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

Who owns the PBoC?

The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

What are the main policy tools used by the PBoC?

Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

Are private banks allowed in China?

Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

Author

Ghiles Guezout

FXStreet

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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