China's central bank has announced that it will reduce 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 strengthen slowing economic growth.

The People's Bank of China (PBOC) announced that from December 15, the reserve requirement ratio (RRR) for banks will be reduced by 50 basis points (bps). The reduction will not affect financial financial institutions with a current RRR of 5%, and the weighted average RRR for financial institutions will be 8.4% following the new reduction.

After taking into account the preferential policy of targeted cuts for inclusive financing, the RRR for large banks is currently at 10.5%.

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"The RRR cut will help relieve downward pressure on the economy and smooth the economic growth curve," Wen Bin, a senior economist at Minsheng Bank, said. "Economic work will face significant pressures and obstacles next year, despite the fact that there is little pressure to meet this year's economic growth target."

According to the PBOC, some of the money released will be used to repay maturing medium-term lending facility loans, reinforcing a policy of avoiding using "flood-like" stimulus. The central bank will guide financial institutions to actively use the released funds to boost support for the real economy, particularly small businesses, it said.

The RRR reduction will save financial institutions roughly 15 billion yuan per year in funding costs, which will help firms lower their financing costs.

Premier Li Keqiang declared the cut, the second this year after a broad-based reduction in July, as a method to increase support for the economy, particularly small companies.