(Reuters] – The yuan’s 5% decline against the dollar during the last three week has sparked speculation as to when and how China’s People’s Bank of China will act to reduce its loss.

The yuan lost 3.6% against major currencies from other trading partners.

Portfolio outflows to China stem mainly from rising U.S. rates and the conflict in Ukraine. There is also a slower domestic economy as a result of lockdowns in Chinese cities fighting COVID-19.

Most market participants anticipate that the yuan will remain weak for the moment, however some analysts expect the central banks to slow its descent.

Robin Xing (chief China economist), stated that PBOC “could also prevent one way speculation with macro-prudential instruments, verbal guidance and the unwinding ample FX deposits commercial banks accumulated over two years.” Morgan Stanley (NYSE:).

Thus far, there has been no indication from the PBOC that it might not be happy with the yuan’s decline. It did, however, reduce the reserve of foreign currencies banks are required to hold.

Below is a listing of policy measures and moves that the PBOC has taken to reduce excess yuan volatility in the last few years.

** COUNTER-CYCLICAL FACTOR IN DAILY YUAN FIXING FORMULA

In 2017, the PBOC added the counter-cyclical element to their formula for setting the daily midpoint of the yuan dollar exchange rate.

While the central bank has not disclosed the method of calculating the counter-cyclical indicator, regulators describe it as an attempt to improve fundamental supply and demand.

The suspension was lifted in 2020, when the Chinese yuan gained strength due to higher inflows of foreign capital and improved economic fundamentals.

** DAILY MIDPOINT SETTING

Onshore spot yuan trades in a 2% area around the daily fix midpoint established by the PBOC.

The currency traders see any discrepancy between the market’s projections and the spot where the PBOC sets the midpoint, as indications that the central banks wants the market to move in a certain direction.

** VERBAL MESSAGES

Public speeches by senior officials of the FX regulator and the central bank have been used to communicate messages to the currency markets. These comments were usually made in state-owned media and often reiterate a promise to maintain the yuan’s stability.

Pan Gongsheng (a vice governor of the PBOC) warned speculators in 2018 against shorting the yuan. He reminded them of the country’s sound economic fundamentals, and large foreign exchange reserves.

** HIGHER DERIVATIVE TRADING COST

The PBOC raised their foreign exchange risk ratio to 20%, from zero in 2018, making it more costly for financial institutions that shorten the yuan in derivatives market.

Ende 2020 saw it drop to zero.

** TIGHTER OFFSHORE YUAN LIQUIDITY

In Hong Kong, the PBOC issued yuan denominated bills to help reduce yuan liquidity offshore.

Analysts said that although the amount was small, it sent out a message to the Yuan Exchange Rate.

** STATE BANK ACTIONS

During previous phases, China’s state-owned banks were spotted selling dollars. Despite having their own orders to execute the order, it was thought they were acting under the direction of the PBOC.

To support the Chinese currency, state banks also swapped yuan and dollars for forwards. They then immediately sold them to the spot market.