China should be ready for more cuts in the reserve requirement in the next few years, in a bid to prevent the economy falling into a downward spiral, a government think tank said on Tuesday.

A report by the Institute of Finance and Banking under the Chinese Academy of Social Sciences said lowering the minimum portion of deposits banks are required to set aside will become "a new normal" in the next few years as the central bank frees up more liquidity to spur growth.

The lowering of the ratio is also imperative to offset the decrease in liquidity of the yuan caused by foreign currency purchases, which was estimated to be 708.2 billion yuan ($109 billion) in December.