China's central bank says it will lift controls on lending interest rates and allow financial institutions to set them, 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 on Friday.
As of Saturday the bank will allow institutions to "set lending rates themselves based on commercial principles".
The moves will lower financing costs for businesses and support China's long-term economic restructuring, the bank said.
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.
Mark Williams, chief Asia economist at Capital Economics, called the change a "significant development for China's financial sector".
In principle more credit-worthy borrowers could now enjoy better rates, although "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.
China economist Zhiwei Zhang of Nomura called the move a "positive" but also "relatively moderate measure".
Earlier this year Premier Li Keqiang called liberalising interest rates a major reform goal for 2013, and Friday's move suggested that China "intends to take a gradual approach", Zhang said.
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