BEIJING (Reuters) – China’s central bank said on Sunday it would cut the amount of cash that some banks must hold as reserves by 50 basis points (bps) in a move designed to stimulate lending to smaller businesses in needs of funds.

FILE PHOTO: A woman walks past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China June 21, 2013. REUTERS/Jason Lee/File Photo

The reserve cut, the third by the central bank this year, had been widely anticipated by investors amid concerns over market liquidity and a potential economic drag from trade disputes with the United States.

The targeted cut in some banks’ reserve requirement ratios (RRRs) – currently 16 percent for large banks and 14 percent for smaller banks – will take effect on July 5, the People’s Bank of China (PBOC) said in Sunday’s online statement.

The central bank said targeted RRR cuts will release about 500 billion yuan ($77 billion) for the country’s five large state banks and 12 national joint-stock commercial banks. The lenders are encouraged to use the money to conduct debt-for-equity swaps, it said.

RRR cuts will also release about 200 billion yuan in funding for mid-sized and small banks to increase lending to credit-strapped small businesses, the PBOC said.

The central bank said it will maintain neutral and prudent monetary policy as it seeks to cultivate an appropriate monetary and financial environment for China’s economic growth and supply-side structural reforms. 

Chinese policymakers have said that the country will use targeted RRR cuts to boost financing to struggling smaller firms, as well as other measures.

($1 = 6.5027 Chinese yuan renminbi)

Reporting By Shu Zhang and Norihiko Shirouzu; Editing by Kenneth Maxwell

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