On Friday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 7.1760, up from 7.1754 the previous day and higher than the 7.2423 estimate by Reuters.
The PBOC, owned by the state, focuses on price and exchange rate stability while promoting economic growth. Mr. Pan Gongsheng currently serves as both the key figure in its management and Chairman of the State Council.
Monetary Tools And Exchange Rate
The PBOC employs various monetary tools, including the seven-day Reverse Repo Rate and the Loan Prime Rate, to influence loan and mortgage rates, as well as the Renminbi’s exchange rate. China has 19 private banks, with WeBank and MYbank being the largest, supported by major tech companies.
The bank’s daily fix was slightly stronger than the previous day, although still well above the estimate given by analysts. This shows that policymakers are keeping a firm grip on the exchange rate, limiting depreciation against the US dollar. By doing this, they help maintain confidence among businesses and investors while preventing excessive capital outflows. It also signals to markets that authorities are not willing to let the yuan weaken beyond a certain level, even as external pressures remain.
Pan’s dual role means that monetary policy decisions are closely aligned with broader economic planning at the highest level of government. This coordination ensures that efforts to stimulate the economy do not undermine financial stability. Since the yuan’s exchange rate affects exports, imports, and inflation, any adjustments to the daily fix or lending rates can have broad effects, not just within domestic markets but also for those trading Chinese assets abroad.
The tools being used here, including open market operations and lending benchmarks, allow policymakers to either inject liquidity or tighten financial conditions when necessary. The seven-day repo rate is especially important, as it shapes short-term borrowing costs for banks. If this rate moves sharply, it can influence funding costs for businesses and households alike.
Banking Structure And Market Influence
The banking structure plays a role as well. With both state-run and private banks in operation, competition exists, but the largest institutions remain heavily guided by the government. The presence of technology-backed lenders like WeBank and MYbank points to a growing overlap between finance and digital services, further influencing access to credit.
For those active in derivatives linked to the yuan or interest rates, the recent policy stance suggests a steady hand but also a willingness to guide markets in a controlled manner. It is not just about the fix coming in stronger—it reflects a broader intention to prevent disorderly moves in currency markets, which in turn affects offshore yuan liquidity. Traders will need to assess how authorities balance stability with economic support in the near future.
