“We should make flexible use of multiple monetary tools to maintain reasonably ample liquidity. At the same time, [we should] deepen interest rate liberalisation, improve the loan prime rate regime and promote its use in practice.”

At a press conference on Tuesday, Yi sought to distance China’s monetary policy from the aggressive easing being carried out by the European Central Bank and the US Federal Reserve, saying the PBOC would rely instead on fine-tuning of its policy in line with the domestic economy and consumer prices.

“A bigger cut in the loan prime rate could come as early as next month,” Wu Qi, a senior fellow at the Pangoal Institution in Beijing, said. “The authorities might also use window guidance, asking banks to give up some of their profits to fund the cut.”

The loan prime rate (LPR), which is published on the 20th of each month, is the average interest rate offered by a group of 18 banks – mostly state owned – to their best clients. It is meant to serve as a benchmark for all lending.

The LPR fell by just five basis points to 4.2 per cent last week, largely because of an injection of 800 billion yuan (US$112 billion) into the banking system after the PBOC on September 16 reduced the amount of money banks are obliged to hold in reserve.

However, the central bank left the rate unchanged on its medium-term lending facility, which it uses to inject liquidity into the banking system at a lower cost and which can influence the prime rate.

Wu said the central bank’s call for lower interest rates was part of the government’s effort to support the economy, particularly small private firms that have been hardest hit by the China-US trade dispute.

China’s economic growth is widely expected to continue to decelerate in the coming quarters, after slowing to a 27-year low of 6.2 per cent in the April-June period.

On Thursday, the Ministry of Finance proposed a new rule that would cap the amount of provisions banks can set aside for expected loan losses, which in turn would limit their ability to hike profits and avoid taxes and dividends.

At the same time, the China Banking and Insurance Regulatory Commission is inspecting banks to make sure they do not reduce or rescind loans for businesses with short-term operational difficulties.

According to central bank figures, outstanding credit to small and micro-sized firms stood at 11 trillion yuan at the end of August, up 23 per cent from a year earlier. At the same time, outstanding loans to private firms stood at 45 trillion yuan, up 6.7 per cent in the year.

The PBOC said also that the cost of fundraising for Chinese companies at the end of August was 1 percentage point lower than the full-year average for 2018, though it did not provide an absolute figure or a breakdown of borrowing cost by size of business.

It said in the Friday statement that credit support for private firms should be in line with their contribution to the economy and society. Private firms account for 60 per cent of China’s economic output and provide 80 per cent of its jobs in urban areas.

Meanwhile, the central bank reiterated that it was the government’s goal to maintain the basic stability of the yuan’s exchange rate.

Washington labelled China a currency manipulator soon after the PBOC, at end of July, allowed the value of the currency to fall below seven to the US dollar for the first time in a decade. Exchange rates are likely to be a key topic at the upcoming talks between Chinese and US trade officials in Washington next month.