China is ramping up financial support for the domestic economy, including a cut in banks' required reserves, officials said on Friday. Also, targeted measures in issuing bonds and injecting liquidity will help bail out the corporate sector with the global spread of the novel coronavirus.

The People's Bank of China, the central bank, announced cuts in the reserve requirement ratio for some rural and city commercial banks by a total of 1 percentage point, split between April 15 and May 15, or 0.5 percentage point each time. That is to release about 400 billion yuan ($56.4 billion) into the financial sector.

It also decided to cut the interest rate the central bank pays on excess reserves deposited by all financial institutions to 0.35 percent from 0.72 percent, the first such cut since 2008.

On average, every small and medium-sized bank will get about 100 million yuan from the RRR cut, which will save them nearly 6 billion yuan in financing costs. The RRR for more than 4,000 small and medium-sized depositary institutions will drop to 6 percent, a new low. The moves will further encourage commercial banks to increase credit to small and medium-sized enterprises, it said.

The PBOC will continue to cut lending costs and use a newly approved 1 trillion yuan from relending and rediscount provisions to boost credit for small and medium-sized companies, said Liu Guoqiang, vice-governor of the People's Bank of China.

The pandemic's impact has not exceeded that of the 2008 global financial crisis, but measures need to be released quickly to offset its fallout. Monetary policy should prevent liquidity shortages and a surge in inflation, Liu said. As to whether the benchmark deposit rate will be cut, the central bank official said the issue still needs more evaluation, as the one-year deposit rate anchors the whole interest rate system.

"As a policy tool, the deposit rate could be used, but it is special and more relevant to the public," he said. Given the current 5.3 percent headline inflation and the 1.5 percent one-year deposit rate, the real rate for depositors is already below zero. A further decline in the deposit rate will add currency depreciation pressure.

Local governments will soon get an additional quota of special bonds, delivered early, to raise funds for government-led investment, Xu Hongcai, vice-minister of the Ministry of Finance, said at a news conference on Friday.

On Tuesday, an executive meeting of the State Council called for speeding up approval and issuance of local government special bonds, more facilities for financial and corporate bond issuance, extension of subsidies and auto purchase tax exemptions for new energy vehicle purchases.

Such policies boost infrastructure, and more financial relief for enterprises and households "should be the best economic and social policies at the moment", said Nomura Securities' Chief China Economist Lu Ting.

Overall business activity across China fell for the second month in March, but the rate of decline eased from February, as indicated by a rise of the Caixin China Composite Output Index to 46.7 from 27.5. The index, released on Friday, covers business activities of small and medium-sized enterprises and exporters in manufacturing and services.