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The People’s Bank of China (PBOC) set the USD/CNY central rate at 7.0901 for the trading session on Wednesday, an increase from the previous rate of 7.0885. The rate also differed from the 7.1336 estimate by Reuters.
The primary monetary policy goals of the PBOC are to ensure price and exchange rate stability and to support economic growth. Financial reforms, such as developing the financial market, are also among the bank’s targets.
PBOC Management and Structure
The PBOC is owned by the state of the People’s Republic of China and is not autonomous. The Chinese Communist Party Committee Secretary influences its management alongside the governor, currently Mr. Pan Gongsheng, who holds both positions.
The PBOC utilises a range of monetary policy tools, including a seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate is the benchmark interest rate, affecting loans, mortgages, and savings interest rates.
China allows 19 private banks, which are a small portion of its financial system. The leading private banks, WeBank and MYbank, are supported by tech companies Tencent and Ant Group, respectively.
The People’s Bank of China has allowed the yuan to weaken slightly against the dollar, setting the reference at 7.0901. However, this fix is significantly stronger than market estimates, which were closer to 7.1336. This action signals that while some depreciation is being tolerated, authorities are actively preventing a rapid decline.
Economic Context and Policy Implications
We’ve seen this policy response amidst a challenging economic backdrop for China, with Q3 2025 GDP growth slowing to 4.2% and recent export figures showing a decline. This internal weakness, combined with a persistent US Federal Reserve rate of 5.0%, naturally puts downward pressure on the currency. The interest rate difference between the US and China makes holding dollars more attractive.
This consistent pattern of strong fixes throughout 2025 suggests that the central bank is determined to cap yuan weakness around the 7.10-7.15 level for now. For derivative traders, this managed environment could make strategies like selling out-of-the-money USD/CNY call options attractive, as the central bank is actively working against sharp upward moves. One-month implied volatility remains elevated at 5.5%, offering decent premiums for those willing to bet on stability.
We are seeing a playbook similar to what occurred back in late 2023, when the PBOC also used consistently strong fixings to anchor the yuan during a period of economic uncertainty. This historical precedent indicates that the authorities have both the tools and the willingness to intervene for extended periods. Therefore, expecting a sudden policy reversal in the coming weeks seems unlikely without a major economic shock.
