The People’s Bank of China (PBOC) set the USD/CNY central rate at 6.9523 on Monday. This is better than the previous fix of 6.9590 and different from Reuters’ estimate of 6.9334. The PBOC aims to keep prices and exchange rates stable while also promoting economic growth. The bank is state-owned and influenced by the Chinese Communist Party. Mr. Pan Gongsheng is both the Committee Secretary and Governor.

Monetary Policy Tools

The PBOC uses several monetary policy tools, including the seven-day Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio. The Loan Prime Rate is the key interest rate that affects loans and mortgages in China. China has 19 private banks, which make up a small part of the financial system. The biggest private banks, WeBank and MYbank, are backed by Tencent and Ant Group. Since 2014, fully privately funded banks can operate within the state-controlled financial sector. The People’s Bank of China set a stronger reference rate for the yuan to prevent a quick drop in its value. The rate of 6.9523 shows that stability is a top priority for the authorities. This should be seen as a way to defend the currency rather than a major policy change. This move is particularly significant because China’s GDP growth for the last quarter of 2025 was 4.8%, slightly below the official target. Additionally, the January 2026 manufacturing PMI dropped to 49.7, indicating a small decrease in factory activity. These numbers point to an economic slowdown that the central bank is trying to manage carefully.

Expectations for Monetary Adjustments

While the PBOC kept its key Medium-term Lending Facility (MLF) rate unchanged last month, we expect them to lower the Reserve Requirement Ratio (RRR) soon. This would add liquidity to the economy without directly cutting interest rates. Such a change could lead to short-term volatility, which options traders might take advantage of. At the start of 2026, it’s important to note that the yuan was trading below 7.20 against the dollar for much of 2025. Today’s stronger fix, staying well below the significant 7.00 mark, shows that the authorities are actively protecting this level. Therefore, derivative traders should be careful about making large bets on more yuan weakness. Also, the US Federal Reserve is keeping interest rates at a 20-year high of 5.25%, giving the dollar a big yield advantage. This difference in interest rates is putting downward pressure on the yuan. The PBOC’s daily rate fixes are the main way to counter this pressure, making them a key point to watch. Create your live VT Markets account and start trading now.

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