(Yicai) Aug. 15 -- China’s central bank unexpectedly cut key policy rates today for the second time since June. It may also move to reduce the benchmark loan prime rate this month in an effort to bolster the economy, analysts said.

The People's Bank of China lowered the rates on its one-year medium-term lending facility loans by 25 basis points to 2.5 percent from 2.65 percent and on its seven-day reverse repurchase agreements by 10 bips to 1.8 percent from 1.9 percent.

The surprise move followed the release of economic data for last month that showed up a number of issues, including weak demand.

“The July financial data was relatively subdued overall,” said Dong Ximiao, chief researcher at Merchants Union Consumer Finance. “Social financing and new yuan loans rose by less than a year ago, much below market expectations, and both household and business loans had weak growth.

“In this situation, it is necessary and urgent to cut rates again,” Dong noted.

The consumer price index fell 0.3 percent in July from a year earlier, reaching the lowest level since January 2021 after being flat in June, data from the National Bureau of Statistics showed last week.

MLF rates could be cut by between 10 and 30 bips before the year’s end, given the need to stimulate a rebound in borrowing, said Ming Ming, chief economist at Citic Securities.

China’s economic recovery has slowed in recent months, and the lead factor is persistently weak demand, Ming said, adding that quantitative tools have a limited effect in supporting demand, so cuts in actual rates are needed to lower financing costs for the real economy. Also, there should be greater support from fiscal policies to guide an increase in private-sector investment, he said.

There is a high probability of a cut to the LPR this month after the the MLF rate was reduced, said Zhou Maohua, a macroeconomic researcher at China Everbright Bank's financial markets division. Special bond issuance may accelerate in this quarter and the central bank will move to ensure sufficient long-term liquidity, Zhou said.

Dong also said the LPR is likely to be cut this month by varying degrees for loans of different maturity. Those due in five years and one year could be trimmed by 15 bips and 10 bips, respectively, Dong said.

Editors: Liao Shumin, Tom Litting