China Surprise Data Could Spell R-e-c-e-s-s-i-o-n
The devil in the details leaves the central bank no choice but to ease. Markets should expect bad news if the crisis grows worse.
Would big stimulus help? Returns on boosting the economy with credit have been diminishing since 2008.
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Against all expectation (not a single economist polled by Bloomberg had predicted it), the People’s Bank of China has cut interest rates. The ease was only by 10 basis points, to the bank’s one-year lending rate, but it was still in the exact opposite direction to the monetary route being taken in the west and in the rest of the emerging markets. And the PBOC would assuredly not have done this unless it felt compelled — which implies that the central bankers believe the Chinese economy is in a worse state than it appears.