The central bank has repeatedly stated its intention to reduce forex market intervention, and market trends have borne out such rhetoric for much of the last year.
But the Peoples Bank of China (PBOC) has stepped up its interventions in recent weeks to head off yuan appreciation amid fears its Asian neighbours may resort to competitive devaluations to bolster their exports.
In characteristic PBOC fashion, when things are uncertain and unclear, they basically keep dollar/renminbi within a range, said Claudio Piron, head of emerging Asia foreign exchange and fixed-income strategy at Bank of America.
In a break with typical practice, the PBOC has guided the yuan slightly weaker over the last two weeks, despite a fall in the dollar versus the euro.
Typically the PBOC sets stronger midpoints in response to a fall in the dollar index, which tracks the greenbacks value against a basket of currencies. The basket is heavily weighted towards the euro.
Analysts and traders say the break with precedent is a response to the recent decline in Asian currencies. The yen fell 16.9% from October through Monday, while the Korean won dropped 3.6% from January 15 through Monday.
After touching a record high of 6.2124 versus the dollar on January 14, spot yuan fell 0.35% to a 2013 low of 6.2342 on Monday, though it had recovered somewhat to 6.2294 by Tuesdays close.
Chinese traders say the recent depreciation has occurred despite robust corporate demand for yuan.
Client orders for yuan are still pretty large, and there is still appreciation pressure. But the midpoint seems to be following Asian currencies with short-term depreciation, said a trader at a large commercial bank in Shanghai.
In addition to using the midpoint, the PBOC has stepped up its direct interventions in the market since early December. Traders have consistently reported large dollar purchases by state banks that they suspect are being conducted on behalf of the central bank.
The PBOC is back to intervening in the FX market - to the net tune of $34 billion in Q4 2012, Standard Chartered economist Stephen Green wrote in a note to clients on Monday.
In a market with average daily volume of nearly $14 billion in the first three quarters of 2012, such intervention is far from overwhelming.
But a few days of large-scale interventions in mid-December sent a clear signal to the market that the PBOC will not tolerate overly rapid appreciation. Once expectations for intervention become entrenched, traders police themselves.