CHINA has cut interest rates for the first time in more than two years, a powerful signal that the government wants to step up support for the slowing economy. As fate would have it, a rate cut was the very thing we had called for in our leader on Chinese monetary policy this week. But we cannot claim to be clairvoyant. We had not expected the central bank to move so quickly. Nor, for that matter, had most analysts or investors – hence the big gains for stocks, commodities and currencies sensitive to Chinese demand in the hours following the announcement.

It is tempting to look at the rate cut through the simple lens of GDP: lower rates mean China is switching policy to a pro-growth footing, or so the conclusion would go. While there is undoubtedly some truth to that, two aspects of the decision show it is more complicated, and indeed more interesting.

First, the People’s Bank of China was at pains to stress that it was not, in fact, about growth. The economy is growing “within a reasonable range”, it said. Instead, it emphasised the need to reduce corporate financing costs to help struggling companies. A knee-jerk criticism of the rate cute is that debt in China is already too high and this will only encourage yet more borrowing. But over the past year, rates have been too lofty for companies to be able to deleverage. Because producer prices are in deflationary territory, the real financing cost for many has been above 8%. With lower rates and a little more inflation, companies will be able refinance more cheaply and, in time, lessen their debt burdens.

This is certainly not the first attempt by the Chinese government to reduce financing costs. Since September it has provided nearly 800 billion yuan ($131 billion) in medium-term loans to banks on the condition that they lower borrowing rates for small businesses. Just this week the State Council, or cabinet, promised to loosen a rule that limits banks’ loans as a proportion of their deposit base, freeing up more cash for them to lend. The central bank has also been quick to make short-term cash injections whenever the money market has been gummed up. But as we wrote in this week’s article, these efforts have come up short. They have been far too narrowly focused and the PBOC’s lack of transparency has caused confusion about its real aims. Friday’s announcement is a welcome change in tack. It would now be surprising if China did not follow up with more rate cuts and more cash injections.

Second, this is an important step on the path towards interest rate liberalisation in China. Previously, banks were allowed to set deposit rates 10% above the benchmark level; that has now been raised to 20%. Competition among banks to attract savers should ensure that banks offer the highest-possible rates. One-year deposit rates were effectively 3.3% before the rate cut (10% above the 3% benchmark). They are likely to remain 3.3% (20% above the new 2.75% benchmark). At the same time, the benchmark one-year lending rate has been cut to 5.6%. Theoretically, lending rates have already been liberalised, with no floor on them; in reality, bankers say they still price loans off the benchmark.