Is China preparing a major stimulus move?

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Significant monetary easing from China's central bank may be just around the corner, according to Barclays.

"We see an increasing probability that more significant monetary easing, including (targeted) interest rate or RRR (reserve requirement rate) cuts, will be announced in the coming weeks," Jian Chang, China economist for Barclays said in a note published on Thursday.

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"[But] while the direction is clear, the details of the PBoC's next move are uncertain," he added.

Slowing growth rates have led investors to suspect that the People's Bank of China could soon undertake easing measures to prevent an economic hard landing. China's first quarter gross domestic product (GDP) growth came in at an 18-month low of 7.4 percent, well below double digit growth rates achieved as recently as 2010.

Three potential paths

According to Chang, easing could take three directions: the introduction measures to boost credit availability in specific sectors; interest rate cuts; or RRR rate cuts.

Cutting the RRR rate across the board would lower the amount of money banks have to keep on their books and consequentially increase the amount they can lend out. In April, the PBOC cut the RRR for some county-level rural commercial banks.

"In our view, cutting interest rates would be a better policy [move] than broad-based RRR cuts, given the high leverage in the economy and weak demand on the one hand, and ample liquidity and unresolved implicit guarantees and 'moral hazard' on the other," said Chang.

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Low inflation may prompt easing in China: Barclays
Low inflation may prompt easing in China: Barclays

The quiet approach

Other economists told CNBC they're not convinced that China's central bank is set to make bold announcements anytime soon.

Citi Investment Research's China economist Ding Shuang said Chinese authorities have been quietly easing since the start of the year; he expects them to continue in this fashion.

"It's more likely to stay this way, continuing to provide adequate liquidity without engaging in so called headline loosening of the policy," said Ding.

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Ding believes the chance of an across-the-board RRR cut is small because authorities are keen to control excess credit growth without over tightening in a way that prompts a hard landing.

"It seems the market is in more panicked condition than the policy makers in my view," said Ding, noting several high-profile figures including President Xi JinPing have indicated they are not concerned about China's growth.

Authorities are more likely to take a targeted easing route as they have in the past, he said, referring to the recent upgrade to the government's railway investment program when the sector showed signs of weakness.

China's slowing property market could be next, Ding said: "There could be more measures to support demand for property including the relaxation of purchase restrictions or making mortgages more accessible and affordable."

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