The building of the People's Bank of China in Beijing Photo: VCG

In order to support the development of China's economy expansion and reduce the real cost of social financing, China's central bank decided on Wednesday to cut the required reserve ratio (RRR) for banks by 0.5 percentage points, effective next Monday.

This round of RRR cut is across-the-board and reflects counter-cyclical adjustment, an official of the People's Bank of China (PBC), the country's central bank, said in a statement.

As a means to directly support the real economy, the RRR reduction will release over 800 billion yuan ($114.9 billion) of long-term funds. This could effectively increase the supply of funds for financial institutions to support China's economy which was impacted by the trade war, according to the statement.

The RRR cut will maintain liquidity at an adequate level, and is conducive to preserving the supply of liquidity, as well as the expansion of the social financing scale in accordance with economic growth. It will give greater play to the decisive role of the market in allocating resources, and will support the development of the real economy, read the statement.

Both big and small banks need to actively utilize the RRR cut to increase support for China's massive small and micro-sized enterprises, as well as private firms, said the official.

The cut does not extend to financial companies, financial-leasing companies or automobile finance companies, according to another statement from the PBC on Wednesday.