SHANGHAI, Aug 15 Reuters China39;s central bank unexpectedly cut a key interest rate for the second time this year and withdrew some cash from the banking system on Monday, to try to revive credit demand to support the COVIDhit economy.

Economists and analysts said they believe Chinese authorities are keen to support the sluggish economy by allowing a widening policy divergence with other major economies that are raising interest rates aggressively.

The People39;s Bank of China PBOC said it was lowering the rate on 400 billion yuan 59.33 billion of oneyear mediumterm lending facility MLF loans to some financial institutions by 10 basis points bps to 2.75, from 2.85.

In a poll of 32 market watchers last week, all respondents had forecast the MLF rate would be left unchanged and 29 had predicted there would be a partial rollover. 

The rate cut surprises us, said Xing Zhaopeng, senior China strategist at ANZ.

It should be a response to the weak credit data on Friday. The government remains cautious about growth and will not let go.

New bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID flareups, worries about jobs and a deepening property crisis made companies and consumers wary of taking on more debt. 

The PBOC attributed its move to keep banking system liquidity reasonably ample. And with 600 billion yuan worth of MLF loans maturing, the operation resulted a net 200 billion yuan of fund withdrawal.

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