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China lets loose more liquidity to aid small businesses

Focus shifts to prospect of interest rate cut after move to free up bank reserves

A worker makes lithium ion batteries at a factory in Dongguan, Guangdong Province. Chinese authorities want to spur banks to lend to small and midsize companies.   © Reuters

BEIJING -- China's central bank decided Friday to reduce the level of cash that banks must hold as reserves to boost liquidity and support private companies caught between the U.S. trade war and Beijing's deleveraging effort.

The 1-percentage-point cut to reserve requirement ratios marks the first such move since October, and focuses attention on whether the People's Bank of China will next lower policy interest rates -- something it has not done since fall 2015.

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