RRRs - now 14.5 percent for large institutions and 12.5 percent for smaller banks - will be lowered by a total of 100 basis points in two stages, the PBOC said.
The People's Bank of China (PBOC), China's central bank, will cut the amount of money banks are required to hold in reserve with it by one percentage point, a move that could pump 1.5 trillion yuan (US$210 billion) of additional liquidity into the banking system to help arrest a deepening economic slowdown. Beijing said Friday that talks aimed at ending the dispute would resume next week.
The policy move was announced hours after Chinese Premier Li Keqiang told the central bank to make universal cuts of the ratio as part of Beijing's efforts to bolster economic growth having cut the RRR four times a year ago.
Tax cuts could be a better way to improve corporations' profitability and boost investments at this time, which is "key to avoiding irrational credit expansion and reducing the risk of further credit tightening in the future", said Mr Xu.
Together, the new measures should inject about 800 billion yuan ($116 billion) into the world's second largest economy as growth slows and a trade war with the United States takes its toll.
The government last week approved local governments to issue bonds worth 1.39 trillion yuan, made up of 810 billion yuan in the special objective bonds and 580 billion yuan in general bonds.
"The central bank will continuously implement prudent monetary policy 'neither too tight nor too loose, ' and refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and stabilize macro leverage ratio to create a proper monetary and financial environment for the country to pursue high-quality economic development and advance supply-side structural reform".
Authorities will reduce the RRR and provide funding for lenders that make loans to private companies in January, he said.
The reserve requirement ratios are now 14.5% for large banks and 12.5% for smaller banks. "The central bank has been handing liquidity to the banks, but the banks are unwilling to lend".
China's manufacturing purchasing managers index fell into the contraction territory last month, the weakest since early 2016.
Chinese financial stocks surged Friday as Premier Li Keqiang visited the nation's biggest banks and pledged more support for the economy.