Why Beijing's interest rate cut is a red flag for economists.
Eventually, it seems, the pressure was just too much. The governor of the People's Bank of China (PBOC), Zhou Xiaochuan, and his colleagues didn't want to cut interest rates, but the risk that China's economy might continue to cool was too great for their bosses in Beijing. After holding firm for two years, the PBOC lowered the one-year lending rate by 0.4 percentage points to 5.6 percent and the one-year deposit rate by 0.25 percentage points to 2.75 percent, giving banks more latitude to extend credit. In economic terms, it's short-run stimulus with a potential long-run cost. But there's a cost for the PBOC as well.