China surprised markets with a cut in the deposit rate and the required reserve ratio today. Is China cutting rates good news or bad news? Here are the two arguments. 1) China is providing necessary stimulus China is fighting the same deflationary forces as the rest of the world. CPI is running at 1.6% y/y and in danger of falling lower. The PBOC highlighted as much in its statement, saying it had room to cut because consumer prices are low. The yuan has been tied to the US dollar for most of the last year and appreciated aggressively, making imports cheaper and driving prices lower in a modestly slower economy. ... (full story)