China lowered its short-term policy rate as well as benchmark lending rates on Monday, in order to prop up growth.
The People\'s Bank of China cut the interest rate on seven-day reverse repos to 1.7 percent from 1.8 percent.
The action was aimed to strengthen counter-cyclical adjustments to better support the real economy, the central bank said.
On Monday, the PBoC conducted CNY 58.2 billion of seven-day reverse repos. The operation will help to keep reasonable and ample liquidity in the banking system, the bank added.
Last month, PBOC Governor Pan Gongsheng said the seven-day reverse repo would gradually become the main policy rate.
After cutting seven-day reverse repo rate, the central bank lowered the one-year loan prime rate to 3.35 percent from 3.45 percent.
Similarly, the five-year LPR, the benchmark for mortgage rates, was trimmed to 3.85 percent from 3.95 percent. The five-year LPR was last lowered by 5 basis points in February.
The PBoC fixes the LPR monthly based on the submission of 18 designated banks. However, Beijing has influence over the fixing. The LPR replaced the traditional benchmark lending rate in August 2019.
The reduction in LPR came as a surprise as the PBoC last week maintained the rate on the medium-term lending facility, which is considered as guide to the LPR fixing, at 2.50 percent.
The policy easing measures came a week after official data showed that economic growth softened to 4.7 percent in the second quarter on weaker consumption and property market downturn.
\"If the PBOC is serious about monetary stimulus, it should cut rates much more substantially,\" Capital Economics\' economist Julian Evans-Pritchard said. \"However, efforts to stabilise long-term yields and keep currency depreciation in check mean that large scale rate cuts still seem unlikely,\" he added.
The economist expects one more 10 basis point cut this year.
Although the weakness of the Chinese yuan held back the PBoC from monetary policy easing earlier, the recent dovish developments in the US and the slight softening of the dollar over the past month may have created a suitable window from the central bank to cut rates today, ING economist Lynn Song said.
The economist forecasts at least one more rate cut in the coming months as China will have a more challenging second half if it is to maintain 5 percent growth for the full year.