London (CNN Business) China is taking new steps to encourage bank lending and stimulate the country's flagging economy.

The People's Bank of China is slashing the amount of money that banks are required to hold in reserve, the latest in a series of policy changes the government has taken to support growth.

The central bank said Friday it would cut its reserve requirement ratio by 1 percentage point over the next month. The reductions will be made in two stages on January 15 and January 25.

Together, the new measures should inject about 800 billion yuan ($116 billion) into the world's second largest economy as growth slows and a trade war with the United States takes its toll.

Economists said the move was partly about managing the amount of money in circulation ahead of Chinese New Year, when cash is often exchanged as gifts.

Read More