China has taken a fresh step to boost flagging growth by cutting the level of cash reserves some lenders must hold at the central bank, in an attempt to boost lending to small businesses and the rural economy.

The People’s Bank of China said it would reduce the “required reserve ratio” by 0.5 per cent for banks that mainly lend to small businesses and rural borrowers.

In the first quarter of this year, China’s economy grew by an annual 7.4 per cent, down from 7.7 per cent in the final three months of 2013. Even if the country hits its official growth target of 7.5 per cent for 2014, it will be the slowest pace since 1990. Many economists believe even that target is unrealistic. Morgan Stanley’s Helen Qiao yesterday lowered her growth forecast for this year to just 7 per cent.