But markets were surprised authorities kept the five-year rate unchanged and the yuan weakened.
The decision comes as investors grow more concerned about China's currency.
The country's post health crisis recovery has lost momentum due to a number of factors.
It includes a worsening property slump, weak consumer spending and falling credit growth.
It all adds to the case for authorities to release more policy stimulus.
But some analysts say Beijing only has limited room for deeper monetary easing due to downward pressure on the yuan.
They believe a further widening of China's yield differentials with other major economies could led to yuan selloffs and capital flight.
The one-year loan prime rate - or LPR - was lowered by 10 basis points to 3.45% from a previous 3.55%.
The five-year LPR was left at 4.20%.
Market watchers had predicted cuts to both rates.
Many traders and analysts thought the troubled property sector and rising default risks at some developers would have led to deeper cuts to the benchmarks.
Most new and outstanding loans in China are based on the one-year LPR.
The five-year rate influences the pricing of mortgages.
China cut both LPRs in June to boost the economy.
The yuan has lost nearly 6% against the dollar so far this year to become one of the worst performing Asian currencies.
