(Bloomberg) -- China’s central bank pushed back against recent yuan weakness by setting its daily reference rate for the managed currency at the widest gap to estimates since November.

The People’s Bank of China set the so-called fixing at 7.1087 per dollar on Thursday, 609 pips stronger than the average estimate in a Bloomberg survey. That’s after the onshore yuan declined nearly 1% since the end of last year.

The PBOC upped its support to defend against growing expectations for monetary easing in China, according to Ken Cheung, chief Asian currency strategist at Mizuho Bank Ltd. in Hong Kong. “The fixing tool is set to remain in play for some time before the recovery momentum for the economy builds up,” he said.

The PBOC has been supporting the yuan through its daily reference rate for the last seven months, as the wide interest-rate gap between the US and China favors the dollar, weighing on the local currency. The fixing limits the onshore yuan’s allowed trading range to 2% on either side.

Thursday’s boost comes as potential policy easing by Beijing next week threatens further yuan weakness.

Investors are waiting to see whether the PBOC will cut the rate on its medium-term loans on Monday or inject additional liquidity to the banking system though this facility to boost the economy. This week, a PBOC official told state media that the nation may lower the amount of money banks must set aside as reserves to boost lending, according to a report by Xinhua.

On top of that, China’s currency also faces pressure from local price data Friday, which is expected to extend deflation concerns. 

Toward the end of last month, the PBOC said in a monetary policy committee meeting that it will keep the yuan generally stable at reasonable levels and prevent excessive one-way moves.

The offshore yuan gained 0.2% to 7.1718 per dollar Thursday while the onshore unit edged up 0.2% at 7.1611.

Exacerbating the yuan pressure, China’s bond yields have slid toward multi-year lows amid the rate-cut bets while the Federal Reserve’s meeting minutes last week suggested US rates will remain elevated for longer.  

“There is still some upside risk to the dollar-yuan,” which could test and break the 7.20 level, said Fiona Lim, a senior currency strategist at Malayan Banking Berhad in Singapore. “Afterall, PBOC seems to signal a clear intention to ease monetary policy while the Fed is not ready to do so at all.”

--With assistance from Qizi Sun and Iris Ouyang.

(Updates with chart on China bonds and analyst comment in last paragraph.)

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