The People's Bank of China has cut its key interest rate for the first time since 2008, in an attempt to boost slowing growth.
The one-year loan rate was cut by 0.25% to 6.31% while deposit rates were cut from 3.5% to 3.25%.
The bank also gave banks flexibility to offer higher rates to savers and lower rates to borrowers, the BBC reports.
In addition, China has delayed the implementation of tougher bank capital rules amid concerns that they may hurt lending.
The rules, delayed until January next year, will increase the minimum cushion of capital a bank must keep to absorb losses on their loans.
They were to be introduced at the start of this year.
In statement on its website late on Wednesday, the cabinet said banks will be given a reasonable transition period to meet the new capital requirements "to help maintain appropriate credit growth".