The RMB exchange rate policy follows a “two-pillar” rule, with the market pillar reflecting foreign exchange market conditions and the basket pillar stabilizing the RMB index. This paper documents a clear pattern of regime-switching in the policy coefficients on the market pillar. And the regime-switching patterns are driven by macroeconomic variables, the intraday market condition as well as the news on trade conflicts. In a Markov-switching rational expectations model, we demonstrate that regime-switching rules expand the policy parameter’s space over which a unique equilibrium exists and the self-fulfilling depreciation is ruled out. Thus, this paper rationalizes the use of counter-cyclical factor— a policy tool proposed to stabilize the RMB exchange market.