Monetary easing to bolster economy, restore confidence

Analysts believe the cut will effectively replenish the market and relieve cash-starved financial institutions.

Wang estimated around 700 billion yuan ($109 billion) of liquidity will be released immediately.

Giving out a similar projection, Lian Ping, economist with the Bank of Communications, wrote in a research note that the cut in deposit reserve ratio will prompt banks to expand credit and enhance their capacity to support the real economy.

The effects of the cut were instant and evident. On Wednesday, the benchmark overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one other, retreated to 1.786 percent from Tuesday's 1.879 percent.

"The RRR cut, therefore, is necessary to keep base money supply stable, and to ensure a steady growth of money and credit in the coming months," Wang said.

The money market has been suffering from lack of liquidity since the end of July despite repeated cash injections by the PBOC through less powerful operations including reverse repurchase agreements and short-term lending facilities.

Economists predict more easing measures from the central bank in the latter half of the year.