China's central bank said on Friday it would cut the amount of cash that banks must hold as reserves for the first time this year to help keep liquidity ample and support a nascent economic recovery.

Chinese leaders have pledged to step up support for the world's second-largest economy, which is gradually rebounding from a pandemic-induced slump after virus curbs were abruptly lifted in December.

The People's Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5 percent reserve ratio, by 25 basis points (bps), effective March 27.

The move, which came earlier than financial markets had anticipated, comes after data showed a gradual but uneven recovery in the world's second-largest economy in the first months, and stronger-than-expected credit expansion in February.

"Policymakers wish to maintain the economic momentum," said Zhou Hao, economist at Guotai Junan International.

The central bank said the cut reflected its intention to "make a good combination of macro policies, improve the level of services for the real economy, and keep liquidity reasonably sufficient in the banking system."

The central bank has promised to make its policy "precise and forceful" this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses.

The reduction follows a 25-bps cut for all banks in December.

The weighted average RRR for financial institutions stood at around 7.6 percent after the cut, the central bank said.

China's economic activity picked up in the first two months of 2023 as consumption and infrastructure investment drove a recovery from Covid-19 disruptions, but its other traditional growth engines are a big question mark: exports remain weak amid a global downturn and the crisis-hit property sector is only slowly beginning to turn the corner.

China has set a modest target for economic growth this year of around 5 percent after it cooled to only 3 percent last year, one of the weakest showings in nearly half a century.

(Reuters)

Paramilitary police officers stand guard in front of the headquarters of the People's Bank of China. (Reuters)

China cuts banks' reserve ratio for first time in 2023 to support recovery