PBOC's Pan: Will act if money market overnight rate persistently deviates from operation rates

Dhwani Mehta FXStreet

The People’s Bank of China (PBOC) Governor Pan Gongsheng said on Wednesday that the central bank would act if the money market overnight rate persistently deviates from operation rates.

Additional quotes

To adjust the temporary overnight reverse and outright repurchase agreement time to 3-3:30 pm.

Meant to ensure flexible and efficient use of temporary overnight reverse and outright repurchase agreements in the open market.

Operating rates will be set at the 7-day reverse repurchase rate in the open market minus 25 basis points and plus 25 basis points, respectively.

Will initiate the action when the money market overnight rate remains consistently below or above the respective operation rates of the tools.

Will provide yuan liquidity to eligible overseas central bank-type institutions through the FIMA RMB repo facility

FIMA RMB repo will accept high-grade yuan bonds, including Chinese government bonds

To issue an action plan for developing offshore finance in the Shanghai International Financial Center.

Yuan to be expanded in offshore business scenarios.

Shanghai to study feasibility of setting up offshore banks.

Market reaction

The above comments had little to no impact on the Chinese proxy, the Australian Dollar (AUD), as AUD/USD trades 0.06% lower on the day at 0.7060 when writing.

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

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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