
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, March 24, 1994                   TAG: 9403240055
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

BIG BANKS BOOST PRIME

Some of the nation's largest banks boosted their prime lending rates Wednesday for the first time in five years in response to the latest round of credit tightening by the Federal Reserve.

But President Clinton insisted that despite the Fed's move to engineer higher rates, the economy is still "on the rise." He said he was heartened by the generally positive reaction of financial markets to the Fed's move.

Norwest Bank Minnesota of Minneapolis was the first major bank to announce it was increasing its prime rate from 6 percent to 6.25 percent. The prime is the benchmark rate for many business and consumer loans. Although only a bank's most credit-worthy corporate customers can borrow at prime, many other rates are based on it.

Norwest's move was followed in short order by similar announcements from other banks, including Chemical Bank of New York, Chase Manhattan and Banc One Corp. of Columbus, Ohio. No Virginia bank announced a similar move Wednesday, but they generally follow the money center banks within a few days of a change.

The prime has been at 6 percent since July 1992. The round of increases was the first broad-based rise in banks' prime lending rate since Feb. 24, 1989. That increase occurred during the Fed's last round of credit tightening and pushed the prime rate from 11 percent to 11.5 percent.

The Fed is boosting rates to cool off the economy as a pre-emptive strike against inflation.

Both this week and on Feb. 4, the Fed's actions were the same - quarter-point increases in the federal funds rate, the interest banks charge each other for overnight loans. It now is 3.5 percent.

Many analysts said they think long-term bond rates, which rose close to 7 percent over the past month, will fall slightly to end the year at perhaps 6.75 percent, as investors become convinced that inflation is not getting out of hand.

Kurt Karl, an economist at the WEFA Group in Bala Cynwyd, Pa., said this decline in long-term rates, which are critical to business borrowing and the housing market, should help to generate economic growth of around 3 percent this year and next.

Many analysts said they do not think the Fed will move again until May 17, at its next policy-setting meeting. And some said if economic growth has slowed sufficiently by that time, the central bank may be content to sit on the sidelines for a few more months.

by CNB