China slashes banks' reserve requirements again as economy slows

China slashes banks' reserve requirements again as economy slows

RRRs - now 14.5 percent for large institutions and 12.5 percent for smaller banks - will be lowered by a total of 100 basis points in two stages, the PBOC said.

China's central bank announced Friday afternoon to cut the RRR by one percentage point in a move to increase loan funding sources for the real economy.

After four RRR cuts so far this year, the ratio for large banks dropped to 14.5pc in October, the lowest level since 2008.

Tax cuts could be a better way to improve corporations' profitability and boost investments at this time, which is "key to avoiding irrational credit expansion and reducing the risk of further credit tightening in the future", said Mr Xu.

Economists believe the government could take more fiscal steps by cutting taxes and boosting spending on infrastructure, amid expectations that the budget deficit ratio could be lifted to 3 percent in 2019 from 2.6 percent previous year.

Beijing has been stepping up its efforts in stimulating growth, which is decelerating quickly amid the trade war with the United States.

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Still, economic growth is thought to have cooled to around 6.5 percent past year - which would be the weakest since 1990 - in line with the target but down from 6.9 percent in 2017.

By allowing banks to place a smaller reserve at the PBOC, the central bank has shelved "general" monetary policy tools including benchmark interest rate cuts and broad-based adjustment in the required reserve ratio - the minimum percentage of deposits a bank is required to have with the PBOC.

This will allow banks to lend more capital to enterprises now classed as small businesses, and therefore free up more reserves from the central bank, with estimates ranging from 400 billion yuan to as much as 700 billion yuan.

The measures will also include targeted RRR cuts aimed at supporting small and private companies, Mr Li was quoted as saying in a statement on the website of the Chinese government. The move by the People's Bank of China, the first of the new year, is seen as a means to help reduce the risk of a sharper slowdown in the world's second-largest economy, where recent data has been softening.

But the central bank said growth was still within a reasonable range and it would continue to implement a prudent monetary policy, without engaging in massive stimulus.

China's manufacturing purchasing managers index fell into the contraction territory last month, the weakest since early 2016.