China's central bank took a major step to boost bank lending on Wednesday, in a continued effort aimed at kick-starting growth in the world's second-largest economy. The People's Bank of China cut by half a percentage point the amount of deposits set aside by commercial banks in case of financial trouble. The step effectively frees up about 500 billion yuan, or about $81 billion, in additional funds that banks can now lend out. The cut is the first broad reduction in what is known as the reserve requirement ratio by China's central bank since May 2012. Over the following years it has made only targeted cuts in the ratio, aimed at lenders focused on agriculture and small businesses. The new move takes effect on Thursday. The step comes as the Chinese economy continues to struggle despite a series of stimulus measures taken in previous months. Growth slowed to 7.4% last year, the lowest level in a quarter century. In past slowdowns, the central bank has often lowered reserve requirements to boost credit. This time around, the central bank had refrained from doing so. Chinese officials and advisers to the central bank said it fears banks, wary of rising risks in a slowing economy, would keep lending to state-owned companies, long their favored clientele. The concern there is that they will continue to ignore smaller borrowers. Beijing wants to prop up smaller firms. In November the central bank made its first cut in interest rates in more than two years, but it has done little to lower businesses' financing costs, according to bankers and economists. Instead it has helped fuel a massive stock-market rally that has made Chinese equities one of the world's best-performing markets in recent months. Those moves "ignited something approaching mania in the stock market and I think concern over that made them delay moves recently," said Mark Williams, an economist with Capital Economics. China's economy has been losing steam due to a number of factors, including a slumping property market and a crackdown on corruption that is causing many large companies to delay new projects. Economists widely expect China's policy makers to lower their annual growth target to around 7% this year from about 7.5% last year. Chinese banks for months have been pressing the PBOC--known in China as Yang Ma, or Big Mama--to free up more funds to boost lending. A rare drop in bank deposits, historically the main source of cheap funding for Chinese banks, is forcing banks to curtail lending or seek more-expensive types of financing. In a brief statement on Wednesday, the PBOC said it will lower the share of deposits banks must set aside with the central bank. The ratio will be 19.5% for big banks after the cut. The central bank on Wednesday also offered new targeted measures to stimulate growth. They include a half-point cut for city commercial and rural banks and a four-percentage-point cut for a big policy bank, the Agricultural Development Bank of China. China's central bank acted just before China's Lunar New Year holiday, which begins in mid-February. Chinese companies and individuals often need cash during that time. It also comes amid signs of capital outflows from China, as investors look at both slowing growth and signs that the Chinese currency isn't likely to appreciate strongly anytime soon. The central bank has beefed up banks' ability to lend in other ways. It pumped extra short- and medium-term funds into banks in the final months of last year, among other moves. But many Chinese bank executives have said such targeted steps are inadequate to address banks' problems. As deposits decline, banks face pressure to either cut lending or find other, more-costly sources of funds. Chinese banks issued 697.3 billion yuan of new loans in December, down from 852.7 billion yuan in November. The figure came in well below the 800 billion yuan suggested by a Wall Street Journal poll of 16 economists. Liyan Qi and Mark Magnier contributed to this article.