Photo. Reuters / Petar Kujundzic

Since the People’s Bank of China announced in May a new element would be added to the daily currency-fixing formula, analysts have been trying to decipher exactly what it means.

Goldman Sachs economists wrote some thoughts on the issue on Monday, noting how the factor has been used thus far. It seems to be based on the spot rate’s intraday trading the previous day, and they argue there is a risk posed by investor’s inclination to defy the guidance which could lead to more dramatic intervention.

“The risk of such intervention is higher when the fixing guidance does not appear to be well heeded by the market, as in mid to late-May and to some degree recently,” the economists were quoted by Bloomberg as writing. “While the countercyclical factor can be used to transmit policy guidance, for credibility it may need to be coupled with occasional meaningful yuan moves driven by actual FX intervention.”

“The onshore yuan’s countercyclical factor is supposed to act inversely to the recognizable forces (market pressures),” the Goldman Sachs economists wrote. “It is also difficult to gauge, as the authorities have not specified how it is set. But also like the case for antimatter, the formulation of the countercyclical factor can be more readily detectable with more repeated observations.”