China's central bank will cut the re-discount and re-lending rates by 25 basis points as of July 1, two sources with direct knowledge told Reuters on Tuesday, in a move that will reduce funding costs for smaller firms and rural sectors.

The Securities Times first reported the rate cuts.

The three-month relending rate for small firms and rural sectors will be cut to 1.95% while the six-month rate will be cut to 2.15% and the one-year rate will cut to 2.25%, the government-backed newspaper reported.

The rediscount rate will be cut by 0.25 percentage point to 2%, it said.

The central bank will also cut the re-lending rate related to financial stability by 50 basis points, it added.

The People's Bank of China has already rolled out a raft of easing steps since early February, including reserve requirement cuts and targeted lending support for virus-hit firms.

China's economy is gradually emerging from a 6.8% decline in the first quarter, its first contraction on record.

(Reporting by Roxanne Liu, Judy Hua and Kevin Yao; Writing by Se Young Lee; Editing by Jacqueline Wong)