China bank to cut reserve requirement ratio for 2nd time this year

China's central bank said on Monday it would cut the amount of cash that banks must hold as reserves, its second such move this year, releasing 1.2 trillion yuan ($188.24 billion) in long-term liquidity to bolster slowing economic growth.

The People's Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for banks by 50 basis points (bps), effective from December 15.

The cut will not apply to financial institutions with existing RRR of 5 per cent, it said, adding that the weighted average RRR for financial institutions will be at 8.4 per cent after the new reduction.

The RRR for large banks, after taking into consideration the preferential policy of targeted cuts for inclusive financing, is currently at 10.5 per cent.

"The RRR reduction will help alleviate the downward pressure on the economy and smooth the economic growth curve," said Wen Bin, a senior economist at Minsheng Bank.

"Although there is little pressure to achieve this year's economic growth target, economic work will face big pressures and challenges next year."

Some of the funds released will be used to replay matured medium-term lending facility loans, according to PBOC, reaffirming a stance of not resorting to "flood-like" stimulus.

The central bank will guide financial institutions to actively use the released funds to step up support for the real economy, especially small firms, it said.

The RRR cut will reduce the funding cost of financial institutions by about 15 billion yuan per year, which will help lower financing costs of firms, it added.

The cut, the second this year following a broad-based reduction in July, was flagged by Premier Li Keqiang on Friday as a way to step up support for the economy, especially small firms.