Update | China's central bank cuts reserve ratio for banks by 50 basis points to spur growth

The People's Bank of China decided to cut banks' reserve requirement ratio by 50 basis points from today, a move that marks its strongest easing since the central bank lowered benchmark interest rates for the first time in two years in November.

The decision came after mainland economic growth slowed to 7.4 per cent last year, the worst in 24 years. Manufacturing activities contracted in January, as the purchasing managers' index showed this week.

Peng Xingyun, a senior researcher at the Chinese Academy of Social Sciences, told the South China Morning Post that the RRR - the proportion of deposits that a bank must keep in cash or place with the central bank - cuts may release more than 600 billion yuan (HK$754 billion) worth of liquidity to the market.

"This is an aggressive move, indicating the government's assessment that the economic situation may be more challenging than people have thought. The drastic easing is likely to greatly boost corporate borrowers' expectation on the economic outlook," he said. "The RRR cut will definitely not be the last one this year," he added.

The central bank said it would "continue to implement prudent monetary policy, keep an appropriate, neither too tight nor too loose, tone, and guide a steady and appropriate growth in credit and social finance in a bid to promote healthy and stable economic growth".

To show stronger support to sectors such as small firms and rural businesses, the central bank said it would slash an extra 50 basis points in RRR for "qualified" city commercial banks and some rural lenders.