Pan Gongsheng, governor of the People's Bank of China (PBOC), said Tuesday that the central bank will reduce the interest rate of seven-day reverse repos from 1.7 percent to 1.5 percent.

The reduction was aimed at guiding the loan prime rate (LPR) and deposit rates to move downward and maintaining stability in the net interest margin of commercial banks, Pan said at a press conference.

Under the market-oriented mechanism for adjusting interest rates, lowering the rate of seven-day reverse repos, which is a main policy rate for the central bank, will lead to declines in various benchmark rates, he said.

The interest rate of the medium-term lending facility (MLF) is expected to drop by approximately 0.3 percentage points, and the LPR and deposit rates may decrease by 0.2 to 0.25 percentage points, according to Pan.

The PBOC cut the interest rate of seven-day reverse repos from 1.8 percent to 1.7 percent in July.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

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