China will allow banks to demand bigger down payments and charge higher rates on mortgages, aiming at curbing a booming sector in the economy.

Commercial banks in some cities would be enabled to demand downpayments of 30%, compared with the previous 20%, the People’s Bank of China said.

The new policy would apply in regions where property prices have been rising too fast, said the central bank.

The central bank also wants to reduce the interest rate on excess bank reserves from 1.62% to 0.99% . That rate corresponds to the central bank’s payment on reserves placed with it by commercial banks. This step is aimed at shrinking the central bank’s costs, said Mr. Ma, an economist with Deutsche Bank in Hong Kong.

Both changes reflect how China is ceasing interest rates regulation. The central bank’s control of all interest rates in China is partly responsible for the poorly functioning financial system, since market forces now have a limited role in costs allocation. Market-determined interest rates also are a necessary condition for a fully floating yuan.

The wider margin on house loans will allow bankers to give riskier borrowers higher interest rates. And the lower central-bank interest payments will keep the bankers from storing funds with the central bank, rather than spend time searching for suitable borrowers.