China's central bank said it will lower relending and rediscount rates by 25 basis points respectively, to bolster small businesses and rural sectors hit by COVID-19.

Starting from Wednesday (July 1), the rediscount rates will be cut by 25 basis points to two percent. The rates of three-month, six-month and one-year reloans supporting agriculture, and small firms will be 1.95 percent, 2.15 percent and 2.25 percent after the cut, said the People's Bank of China (PBOC).

This is the second adjustment this year. In May, the central bank cut the relending rates to 2.5 percent from 2.75 percent.

Meanwhile, the PBOC will lower the interest rates of financial stability relending loans by 0.5 percentage points to 1.75 percent. 

The country has rolled out a slew of measures to cushion the economic blow from the epidemic, and help virus-hit businesses weather through the difficult period.

For instance, the central bank in February issued special reloans of 300 billion yuan (about 42.5 billion U.S. dollars) and pumped 1.2 trillion yuan into the financial system via reverse repos.

In addition, a State Council meeting in March said the relending and rediscount quota for small and medium-sized banks will be expanded by one trillion yuan to support private businesses and small firms.

"The PBOC may add more liquidity via relending and rediscounting to make sense of the 25 basis-point-cut to relending and rediscounting rates. The exact impact of cutting these rates hinges on the amount of relending and rediscounting in coming months," said Nomura in the latest research report.

The report also said reserve requirement ratio (RRR) cuts are still possible. "We maintain our call for 150 basis points of total RRR cuts for the remainder of this year and believe the next RRR cut could come in the next month, at a scale of 50-100 basis point. However, these RRR cuts could be partly replaced by liquidity injections via relending and rediscounting."

(Cover image via VCG)