The People’s Bank of China (PBOC) has cut its short-term interest rates and is now expected to slash its medium-term interest rates for the first time in 10 months. The central bank is considering a bigger monetary stimulus package to revive economic activity amid a slowdown.

On Tuesday, the PBOC cut its seven-day reverse repo rate and standing lending facility (SLF) rate by 10 basis points to 1.9% from 2%. This is China’s central bank’s first cut in interest rates since August last year. The PBOC also injected 2 billion yuan ($280 million) into the country’s banking system to increase economic liquidity.

Analysts and traders believe this cut signals possible easing for longer-term rates to revive demand and restore investor confidence in the world’s second-largest economy. Market participants predict that the one-year medium-term lending facility (MLF) loans would also be lowered on Thursday when the central bank is due to roll over 200 billion yuan ($27.92 billion) worth of such maturing loans.

The MLF rate guides the benchmark loan prime rate (LPR), and markets often utilise the medium-term rate as a guide for any adjustments to the lending benchmark. On June 20, information about the LPR’s monthly fixing will be released.

As it eases monetary policy to support a sputtering recovery, China’s central bank continues to stand apart among the world’s central banks. However, further rate reductions will result in a broader yield gap with US assets and a greater danger of capital flight.