The People's Bank of China (PBOC), the central bank, announced cutting the reserve requirement ratio (RRR) and lowering key interest rates on Tuesday.
The move was described in a PBOC statement as "promoting restructuring" to "stabilize the real economy".
On Sept. 6, the RRR for financial institutions will be cut by 50 basis points. The RRR for financial leasing companies and auto financing companies will be lowered by 300 basis points.
Benchmark interest rates will also be cut. From Wednesday, interest rates for one-year lending and deposits will be cut by 25 basis points to 4.6 percent and 1.75 percent respectively.
It is the fourth RRR reduction in nearly seven months and the fifth round of interest cuts in nearly nine months.
As economic growth continues slowing and global financial markets fluctuate, China faces a tough task to stabilize growth and needs to use the monetary policy tools more flexibly, the PBOC explained.
It said the purpose of the RRR reduction is to further lower the cost of social financing and support the real economy.
"The move is necessary to cut financing costs and stabilize market expectations as July's industrial expansion posed slowing speed," said Ma Jun, chief economist at the PBOC's research bureau.
China's value-added industrial output, which measures the final value of industrial production, expanded 6 percent year on year in July, down from 6.8 percent for June, according to the National Bureau of Statistics.
"But the cuts do not mean a change in the country's monetary policy," Ma added, saying that China still maintains its prudent monetary policy and the cuts are expected to stir proper expansion of currency credit.
Zeng Gang, researcher at the Chinese Academy of Social Sciences, pointed out the shrinking funds outstanding for foreign exchange generates pressure on liquidity for Chinese banks.
He believed the cut in RRR will guide more credit support for the weak parts of the entire economic development.
Besides the RRR cut, the PBOC said it has implemented new tools to provide liquidity, including Reverse Repurchase, a Medium-term Lending Facility and Pledged Supplementary Lending.
Meanwhile, the central bank also announced removing the upper limit of the floating range of interest rates for one-year fixed deposits and fixed deposits of longer terms.
The change marked a step toward interest rate liberalization, conducive to improving financial services and the economic restructuring, the PBOC said.
The world's second-largest economy posted 7-percent growth year on year in the second quarter of 2015, unchanged from the first quarter and the lowest quarterly growth rate since 2009.
