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Banks Push Prime Rate to 9.25%, 2nd Hike in 33 Days

October 07, 1987|Associated Press

NEW YORK — Major U.S. banks from coast to coast raised their prime lending rates to 9.25% from 8.75% today, about a month after the banking industry lifted the key rate a half percentage point.

The new level is the highest in more than a year and a half, and economists said the move was inevitable in the face of rapidly rising money market rates.

Chase Manhattan and Citibank were the first to announce the increase, followed by Chemical Bank, Manufacturers Hanover Trust, Morgan Guaranty Trust, Mellon Bank, First National Bank of Chicago, Continental Illinois, Security Pacific and Bank of America. Others were expected to follow suit.

The increases reflect the broader 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 keep inflation in check.

"It basically comes as no surprise," said Elizabeth G. Reiners, a money market analyst with the investment firm of Dean Witter Reynolds Inc. "Banks have been under pressure to maintain profit margins following huge write-offs for loan-loss reserves."

The prime is the benchmark used by banks to set interest rates on a variety of corporate and consumer loans, including some mortgages.

The prime was raised to 8.75% from 8.25% on Sept. 4 in response to the Fed's decision to boost its discount rate, the interest charged to member banks.

Major banks have raised their prime rates four times so far this year in response to the increase in market rates, which have increased the banks' cost of borrowing money and paying interest on deposit accounts.

The last time the rate was near today's level was in March, 1986, when it was lowered from 9.5% to 9%. The prime peaked at 20.5% in 1981.

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