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

The People's Bank of China (PBoC) announced on Thursday that it intends to maintain a loose monetary policy while aiming to keep the Chinese Yuan (CNY) exchange rate stable, according to Reuters. The central bank plans to implement counter-cyclical adjustments and ensure that the growth of social financing and money supply aligns with economic growth and price-level targets.

When it comes to foreign exchange, the PBoC reiterated its commitment to maintaining a broadly stable exchange rate for the CNY at a "reasonable and balanced level." Moreover, the central bank intends to guide large banks in serving the real economy while reinforcing their capital. Additionally, the PBoC stated that it will continue to progress the reform of its monetary policy operational framework.

The primary objectives of the People's Bank of China are to maintain price stability, including exchange rate stability, and promote economic growth. The bank also aims to carry out financial reforms, such as expanding and developing the financial market. It is essential to note that the PBoC is a state-owned institution and is not considered autonomous.

The management and direction of the bank are significantly influenced by the Chinese Communist Party (CCP) Committee Secretary, who is nominated by the Chairman of the State Council. Currently, Mr. Pan Gongsheng holds both the positions of PBoC Chairman and CCP Committee Secretary. Unlike Western economies, the PBoC utilizes a more extensive range of monetary policy instruments to achieve its goals.

The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions, and Reserve Requirement Ratio (RRR). Nevertheless, the Loan Prime Rate (LPR) remains China's benchmark interest rate. Adjustments to the LPR directly impact the rates for loans and mortgages in the market and affect the interest paid on savings.

By changing the LPR, the central bank can also influence the Chinese Yuan's exchange rate. While China boasts 19 private banks, they constitute a minor portion of the financial system. The most significant private banks are digital lenders WeBank and MYbank, which are supported by tech giants Tencent and Ant Group, as reported by The Straits Times.

In 2014, China permitted fully capitalized domestic lenders to operate within the state-dominated financial sector, following a trend initiated by the state-owned banks.