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Banks Hike Prime to 8%--2nd Boost in 2 Weeks

May 15, 1987|Associated Press

NEW YORK — The nation's biggest banks raised their prime lending rate by a quarter percentage point today to 8%, the highest level in 10 months and the second time in two weeks that the key interest rate has increased.

Chase Manhattan Bank, the first to announce the increase, was quickly followed by Citibank, Chemical Bank, Manufacturers Hanover Trust, Pittsburgh's Mellon Bank, First National Bank of Chicago and others, including a number of regional banks. The banks said the increase was effective immediately.

Spokesmen for the banks declined to comment on the timing or reasons behind the move.

The banks last raised their prime rates on May 1 to 8% from 7 3/4%. On March 31, major banks raised the prime rate to 7 3/4% from 7 1/2%, where it had held since late August, 1986.

The increases reflect the broad pressure pushing up interest rates nationwide. Economists have linked the upward movement to efforts by the Federal Reserve Board to tighten credit conditions, largely to stem the dollar's declining value and reduce the prospects of inflation.

Major banks have been raising their prime rates this year in response to rises in market rates, which over the last six months have increased the banks' costs of borrowing money and paying interest on deposit accounts.

The prime is a benchmark used to set interest on a range of corporate and consumer credit. In recent years, the rate has taken on greater significance for consumers because it is used for setting interest on credit on variable rate credit cards, home equity loans and other consumer debt.

Today's increases pushed the base lending rate to its highest level since July, 1986, when the rate was changed from 8 1/2% to 8%. The prime rate peaked at 20.5% in 1981.

Analysts said the banks' move to raise the prime was not unexpected.

"It was only a question of when, not whether," said Allen Sinai, chief economist of Shearson Lehman Brothers Inc.

Rick Samartino, a banking analyst with Argus Research Corp., said that while the prime rate increase was widely anticipated, it could add fuel to fears of renewed inflation that have dampened financial markets in recent weeks.

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