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BEIJING, Jan 4 (Reuters) - China's central bank said on Friday it was cutting the amount of cash that banks must hold as reserves for the fifth time in the past year -- freeing up $116 billion for new lending as it tries to reduce the risk of a sharper economic slowdown.
The latest support measures come amid mounting worries about the health of the world's second-largest economy, which is facing both slowing demand at home and punishing U.S. tariffs on its exported goods.
Global stock markets sold off on Thursday after a warning from tech giant Apple Inc about slowing China sales, while data earlier this week showed the country's manufacturing activity shrank in December for the first time in over two years.
The cut in banks' reserve requirement ratios (RRR) is the first in 2019 by the People's Bank of China (PBOC) as the economy faces its weakest growth since the global financial crisis and mounting pressure from U.S. tariffs.
Reserve requirement ratios (RRRs) - currently 14.5 percent for large institutions and 12.5 percent for smaller banks - will be lowered by a total of 100 basis points (bps) in two stages, the People's Bank of China (PBOC) said.
The cuts will be effective Jan. 15 and Jan. 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight.
The moves will free up a net 800 billion yuan ($116.51 billion) after banks use some of the 1.5 trillion yuan in liquidity released into the financial system to pay back maturing medium-term loans.
"Policy easing will be stepped up further over coming months," Capital Economics said in a research note.
"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."
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Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed China's economy was continuing to lose steam. The size of the move was on the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since last January.
The announcement came just hours after Premier Li Keqiang said China would take further action to bolster the economy, including RRR cuts and more cuts in taxes and fees.
The central bank said China's economic growth is still within a reasonable range and it will continue to implement a prudent monetary policy, without engaging in massive stimulus. "We will maintain reasonable and sufficient liquidity, maintain reasonable growth in the scale of money and credit and social financing, stabilise macro-leverage, and seek internal and external balances," it said.
China's economic growth is expected to have cooled to around 6.5 percent last year, in line with Beijing's target but down from 6.9 percent in 2017.
A further deceleration is seen this year, with some analysts forecasting growth will cool to nearly 6 percent, which would mark China's weakest expansion since 1990. ($1 = 6.8661 Chinese yuan renminbi)
(Reporting by Kevin Yao; Editing by Kim Coghill)