China's central bank, encouraged by easing inflation, lowered the bank reserve requirement ratio by 0.5 percentage point, the first such cut in three years.
The monetary policy action by the People's Bank of China, designed to boost the banking system's liquidity, comes at the same time as the U.S. Federal Reserve and the central banks of five other countries decided to cut rates to make it easier for banks everywhere to borrow U.S. dollars and ease their credit crunch.
The Chinese central bank's action, effective Monday, would lower the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks, China's official Xinhua news agency reported.
The lower rate would allow these banks to lend more of their deposits instead of keeping them in reserves.
The bank said its action is expected to allow banks to release about $63 billion of capital into the market.
Analysts were quoted as saying the move also signals the Chinese government is set to stabilize economic growth after easing inflationary pressures.
Government data showed China's inflation dropped to 5.5 percent in October from a 37-month high of 6.5 percent in July. Analysts expect the rate to fall to less than 4 percent in December.