The People's Bank of China (PBOC) has cut its main one-year lending rate by 0.31 percentage points.
It now stands at six per cent and is evidence of how the nation's government is keen to promote stimulus.
This represents the second time in four weeks that a cut has been introduced as the country's leaders seek to prop up the lending market.
According to the PBOC, banks will now also be able to hand out money at 70 per cent of the benchmark rate, which is down from the previous figure of 80 per cent.
Chiyuki Shiraiwa, economist at SMBC Nikko Securities, told Reuters that "slowing growth and cooling inflation" are the two reasons behind the decision to drop the rate.
"Further monetary stimulus is likely, as soon as China seeks to bring the economy to a comfortable level in time for a political leadership change in the fall," he added.
By Asim Shah