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

DATE: WEDNESDAY, November 16, 1994                   TAG: 9411160150
SECTION: VIRGINIA                    PAGE: A-1   EDITION: NEW RIVER VALLEY 
SOURCE: MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

VA. BANKS RAISE PRIME TO 8.5%

Six of Virginia's seven major banks raised their prime lending rates to 8.5 percent on Tuesday shortly after the Federal Reserve raised rates.

The increase was effective Tuesday at Crestar Bank, First Union National Bank, First Virginia Bank, NationsBank and NBC Bank, and the change will go into effect today at Central Fidelity Bank.

Signet Bank said it will reach a decision on the matter today.

David Orr, chief economist in Charlotte, N.C., with First Union Corp., said he believed Federal Reserve Board members took such a large step so they wouldn't have to raise rates again at their next meeting, Dec. 20. A rate increase might otherwise have been needed then, he said. But the Federal Reserve "didn't want to play Grinch" five days before Christmas, he said.

"I think it's a signal of how good the economy is," Orr said. The rates are going up because business is doing well. The increase, he said, "will not cause anyone not to borrow."

He predicted that the Federal Reserve will raise rates again by a half-point in late winter, perhaps as early as its Jan. 31 meeting, then again in the spring. Based on that outlook, Orr predicted the prime rate should be 9.5 percent by summer.

Christine Chmura, economist with Crestar Bank in Richmond, said the Federal Reserve was trying to slow down the rate of economic growth to stretch the current economic expansion over a longer period of time. She said the board wanted to make sure that inflation would not accelerate.

With a higher prime rate, she said, both consumers and businesses will not increase their spending as much as they would have done otherwise.

Conventional 30-year, fixed-rate mortgages will not be affected, Chmura said, but adjustable-rate home loans "will show a fairly good increase."

The rate increase will have an immediate impact on revolving home equity lines, some credit card rates and many other consumer rates. Most business borrowing is based on the prime.

by CNB