PBOC's targeted liquidity support to certain institutions for special goal use - such as providing long-term cheap funds to the China Development Bank to finance subsidised housing - has edged towards bankrolling projects favoured by the government.
It will reduce the required reserve ratio (RRR) by 0.5 of a percentage point on January 15 and again on January 25 so that banks have sufficient funds to lend, especially to private firms and small businesses.
Small and micro-sized companies with a credit line of less than 10 million yuan (US$1.46 million) will be able to take advantage of reserve-requirement ratio cuts, compared to the previous standard of 5 million yuan, said the PBOC in a statement. China International Capital Corp said that may release as much as 400 billion yuan of liquidity.
Li added that China will also step up countercyclical adjustments of macro policies and further cut taxes and fees.
Latest RRR cut will lower interest payment costs for banks by 20bln Yuan annually.
According to numbers China released earlier this week, factory activity declined in December for the first time in more than two years, suggesting that the business environment is likely to become worse.More news: Sandra Oh gets emotional at Golden Globes over strides in representation
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China's central bank has announced more monetary easing in the form of cutting the minimum reserve level for commercial banks by a total of one percentage point.
Richard Xu, head of China Banking and Fintech Research at Morgan Stanley, said that a further RRR cut is necessary to ensure adequate credit supply.
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.
Lian Ping, chief economist at the Bank of Communications, said the pressure of the economic slowdown would show up in the first half of 2019 when the existing United States tariffs on US$250 billion of Chinese goods would bite deeper into the economy. The government has also ramped up spending on infrastructure to rekindle sluggish demand and investment.
A further deceleration is seen this year, with some analysts forecasting growth will cool to almost 6 percent, which would mark China's weakest expansion since 1990.
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.