Bank reserves lowered to boost economy

China's central bank decided on Wednesday to inject more than 800 billion yuan ($115 billion) into the financial sector by reducing the amount of cash financial institutions must keep in reserve. The move is designed to maintain "reasonably ample" liquidity and lower financing costs for the real economy.

The reserve ratio requirement for most financial institutions will be reduced by 0.5 percentage point on Monday, the People's Bank of China, the central bank, said in a statement. After this cut, the reserve ratio will be in a range of 6 percent to 12.5 percent, with the largest banks at the higher end.

The central bank has cut the reserve ratio eight times since early 2018 to spur economic growth. The latest move should not be seen as a change in prudent monetary policy, and it is not a "flood irrigation type of easing", according to the central bank.

The monetary authority is asking commercial banks to use the $115 billion fund to increase financial support for small, micro and private companies.

Small and medium-sized commercial banks, whose main business is lending to small enterprises, may receive more than 120 billion yuan from the reserve cut, according to estimates by economists.

Experts in the financial sector predicted the capital injection several days ago, as the monetary authority usually takes measures to hedge against potential liquidity shortages before Chinese Lunar New Year, which falls on Jan 25 this year.