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China's central bank will lift controls on lending interest rates and allow financial institutions to set them, it said today, in a step toward liberalising the financial sector.
'The People's Bank of China has decided, as of July 20, 2013, to completely relinquish control of the lending rates of financial institutes,' it said on its website.
As of Saturday the bank will allow institutions to 'set lending rates themselves based on commercial principles'.
A maximum lending rate offered by rural credit cooperatives was also scrapped.
The bank added it would not adjust policies on mortgages in order to promote 'healthy development of the housing market'.
Property prices have continued to rise in recent years despite several measures to try to control them.
The moves will lower financing costs for businesses and support China's long-term economic restructuring, the bank said.
Mark Williams, chief Asia economist at Capital Economics, called the change a 'significant development for China's financial sector'.
Although in principle more credit-worthy borrowers could now enjoy better rates, 'in practice the immediate difference will be small', Williams added.
Bigger firms have already been able to access alternative sources of credit thanks to a fast-growing corporate bond market, he said.
