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China Slashes Banks' Reserve Requirement Ratio To Support Slowing Economy


China's central bank on Friday cut the reserve requirement ratio for banks by 100 basis points, to ensure more liquidity as markets worry over the health of the economy.

The RRR, which determines the amount of money that bank should hold in reserve, will be cut by 50 basis points on January 15 and by a further 50 basis points on January 25, the People's Bank of China announced on its website.

The latest reduction in the RRR is expected to release about $116 billion of liquidity into the banking system to boost lending, especially to small businesses.

The central bank also expects the latest RRR reduction to boost liquidity ahead of the Chinese New Year.

The PBoC reduced the RRR four times in 2017.

The move comes just hours after Chinese Premier Li Keqiang said more measures would be taken to bolster the economy, including cuts to reserve ratios and taxes.

Further, global stock markets were roiled after Apple Inc. predicted slowing sales in China. The announcement led to the biggest fall in the company's shares since 2013.

Market sentiment partly revived on hopes of a some easing in the trade tensions between the US and China after the trade talks between the two countries scheduled for next week.

The bank is widely expected to step up monetary policy easing in coming months to avoid a sharp slowdown in the economy.

"We suspect the next major - and still not broadly anticipated - step will be a cut to benchmark lending rates," Capital Economics economist Mark Williams said.

"But with credit growth still slowing and, typically, a six-month lag before any turnaround in credit affects the economy, worries about the outlook for China will persist for several months yet."

Recent data has been disheartening with the latest survey results showing that the manufacturing sector slid into contraction in December. Despite a modest improvement, the service sector activity also remained subdued.

China's third quarter growth of 6.5 percent was the weakest since the global financial crisis in 2009.

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