The offshore yuan fell the most in a week, as China’s central bank chief hinted there’s no line in the sand for the currency and that he’s willing to ease policy to protect the economy from trade-war fallout.

The Chinese currency dropped as much as 0.2%, the most since May 31, before paring its loss slightly to trade at 6.9388 per dollar. The nation has “tremendous” room to adjust its fiscal and monetary toolkit if trade tensions worsen, and no number is more important than another for the yuan’s exchange rate, People’s Bank of China Governor Yi Gang said in an exclusive interview with Bloomberg.

His comments came amid intensifying debate over whether and when the yuan may weaken past 7 per dollar, a level that hasn’t been touched since the global financial crisis. The Chinese currency has stabilized of late, after tumbling in May, as a growing chorus of officials and state media issued verbal support.

Here’s what analysts said about Yi’s comments and the yuan:

National Australia Bank (Christy Tan, head of markets strategy)

  • China may move from more targeted monetary easing, such as reserve-ratio cuts, to a policy interest-rate reduction
  • The PBOC may reduce benchmark interest rates if full-year growth threatens to fall below 6.2% and if the U.S. imposes tariffs on remaining Chinese exports
  • Risk of yuan breaking 7 has increased along with the escalation in the trade war and the prospect that tension will be prolonged
  • The trigger for 7 to break will be if there’s no progress during the Group-of-20 summit and the U.S. imposes more tariffs

Nissay Asset Management (Toshinobu Chiba, chief portfolio manager of fixed-income investment department)

  • Yi’s comments imply that China will focus on easing monetary policy and will allow the yuan to depreciate
  • The PBOC may set its fixing weaker
  • The central bank won’t allow the yuan to slide in a “radical” way, after the currency drops below 7; it will cap yuan slide at about 7.5 this year
  • The fund is currently betting long-end China government bonds will rise, and is “slightly overweight” on the yuan; may turn neutral on currency after seeing next week’s reference rate

Scotiabank (Gao Qi, strategist)

  • Yi’s comments are a hint that China may allow the yuan to break 7
  • The governor is seeking to prepare and guide the market for a possible break
  • The level can be breached if trade talks collapse

Westpac Banking (Frances Cheung, head of Asia macro strategy)

  • “China does have a lot in their toolkit to support liquidity and growth. We believe the PBOC is on an easing bias”
  • Westpac Bank still has a cumulative 300 basis points of reserve ratio cuts penciled in for the rest of this year, which will be “a combination of targeted and general cuts”
  • “Yi’s latest comment should further comfort the rates and bond market, which had been erring on the cautious side despite easing expectations”
  • China still has the intention to avoid rapid yuan depreciation, but would not like to be constrained by certain levels
  • Ideally, the yuan passing some key levels will not invite uncontrolled capital outflows
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