The People’s Bank of China (PBOC), China’s central bank, announced on Thursday that its key loan interest rates (LPRs) would be left unchanged. The loan risk coverage ratio for one year and five years was 3.00% and 3.50%, respectively.
Market reaction to the People’s Bank of China’s interest rate decision
At the time of writing, the AUD/USD pair was trading 0.26% higher on the day to trade at 0.6485.
People’s Bank of China FAQ
The primary monetary policy objectives of the People’s Bank of China (PBoC) are to protect price stability, including exchange rate stability, and promote economic growth. The Chinese central bank also aims to implement financial reforms, such as opening and developing the financial market.
The People’s Bank of China (PBoC) is owned by the People’s Republic of China (PRC), so it is not considered an independent institution. The Secretary of the Communist Party of China Committee, nominated by the Premier, has key influence over the management and direction of the People’s Bank of China, not the Governor. However, Mr. Pan Gongsheng currently holds both positions.
Unlike Western economies, the People’s Bank of China uses a broader range of monetary policy tools to achieve its goals. Key instruments include the seven-day reverse repo rate (RRR), the medium-term lending facility (MLF), foreign exchange interventions, and the reserve requirement ratio (RRR). However, the Loan Prime Rate (LPR) is the benchmark interest rate in China. Changes in the LPR directly affect the rates that must be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, the Chinese central bank can also influence the Chinese RMB exchange rates.
It is true that China has 19 private banks – a small part of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, according to the Straits Times. In 2014, China allowed domestic lenders who receive all capital from private funds to operate in the state-dominated financial sector.
