The People`s Bank of China (PBOC) confirmed on Friday that it might add a vague "counter-cyclical factor" to the pricing model it offers to market makers to decide the yuan`s daily reference rate against the greenback.
The change would mean a stronger state hand and less of a role for market forces in setting the rate.
The PBOC has fine-tuned the pricing mode in the last couple of years by taking reference to the yuan-dollar closing price and the yuan`s value against a basket of currencies.
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But the China Foreign Exchange Trade System said the mainland`s foreign exchange market was susceptible to "irrational expectations" that could exaggerate one-sided sentiment.
A "countercyclical" factor in the pricing model could help offset the "herd effect" and bring the yuan`s central parity in line with economic fundamentals, it said.
Christopher Balding, associate professor at Peking University`s HSBC Business School in Shenzhen, questioned the need for the change given the yuan`s extremely low volatility in recent months.
"The only logical explanation for the change is that they are trying to provide greater discretion in managing the yuan`s value," Balding said.
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