The People's Bank of China (PBOC) decided Friday to cut the reserve requirement ratio (RRR) for RMB deposits by 1 percentage point.
In addition, the central bank will likely inject more funds to the banking system through TMLF loans, a RRR cut or a targeted RRR cut around the Chinese New Year holiday falling on 5 February this year.
According to the country's Premier Li Keqiang in a statement, the measures will include targeted RRR cuts aimed at supporting small and private firms.
The central bank said this will help expand coverage of its preferential policies and guide banks to better meet the credit demand of small companies.
China will also step up "countercyclical adjustments" of macro policies and further cut taxes and fees, Li said.
China's economic growth appears to be slowing faster-than-expected amid escalating risks of a synchronized global slowdown, with manufacturing activity contracting in December for the first time in more than two years.
"This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth", said Yang Hao, an analyst at Nanjing Securities.
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The central bank will convene its first policy meeting this year on January 29 and 30, followed by a second at the end of March. Data released earlier on Friday showed United States employers added the most workers in 10 months as wage gains accelerated.
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The reduction is being made in two equal stages, effective January 15 and January 25, the PBOC said.
"Policy easing will be stepped up further over coming months", Capital Economics said in a research note.
PBOC's targeted liquidity support to certain institutions for special objective 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. One big wild card is how the trade war between the United States and China will play out in 2019.
Analysts at JPMorgan Chase said that the central bank's action suggests that "the Chinese government is tilting toward a growth-oriented stance".
The PBOC said it will keep the prudent monetary policy "neither too tight nor too loose" while maintaining market liquidity at a reasonably ample level and the market interest rate level reasonably stable. "The central bank has been handing liquidity to the banks, but the banks are unwilling to lend".
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.
The government maintains 2018 economic growth will still come in on target at around 6.5 percent this year, slowing from 6.9 percent in 2017.