PBOC reportedly asks banks to neutralise counter-cyclical factor in CNY fixing formula

Reuters reports on the matter

The report says that the PBOC has asked banks to suspend the use of the counter-cyclical factor in its daily yuan midpoint fixing, citing two sources.


Adding that the Chinese central bank has requested some of the 14 midpoint contributing banks to submit and “adjust” their models to “better reflect” flexibility in the yuan exchange rate and let the currency become more market-driven.
I think this news is bigger than what the market will take it for.
For some context, the counter-cyclical factor is a tool introduced to stem any unwanted volatility that could lead to undesirable movement – usually weaker – in the yuan.
It was introduced back in May 2017 after USD/CNY appreciated close to 7.00 back then and was removed at the start of 2018 when it helped to drive the pair lower.
It was then brought back in August 2018 when the pair quickly appreciated back towards 7.00 and has stuck ever since.
I may be reading this a bit wrong but the suspension of the counter-cyclical factor could end up working both ways.
If that is the case, then it sure looks like a signal that the PBOC is hinting that the 6% drop in USD/CNY since the end of May is enough for now.