China is lifting some controls on bank lending rates, in a step toward a more market-oriented financial system.

China’s central bank said Friday it was canceling the 70 percent “floor” on interest rates to be paid by borrowers, so that financial institutions can set the rates themselves. The change will go into effect on Saturday. The 70 percent rate will remain for mortgage loans.

The overhaul is seen as an effort to help China’s economy, because cutting lending controls could allow banks to charge lower rates to borrowers with healthy credit, and therfore inject more capital into the economy for business and other investment.

It is the first major economic reform under President Xi Jinping, who took office earlier this year.

The central bank says it will not adjust lending rates for mortgage lending in order to protect the country’s property market from speculation.

China’s liberalization of interest rates could eventually lead to lifting limits on capital flowing in and out of the country. A more flexible system could start sharp capital inflows and outflows across China’s borders. [Read More]

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Source: VOA News: Economy and Finance