Chemical Banking Corp. Monday cut its prime lending rate one-quarter point to 6.25 percent. The move followed the Federal Reserve Board's reduction in short-term interest rates late last week.
If other major banks follow, the prime will be at its lowest level since Dec. 13, 1976.The last cut in the key interest rate, which is used to set interest rates on a wide range of business loans as well as adjustable rate mortgages, was on Dec. 20, 1991, when banks lowered the prime a full point to 6.5 percent.
Last Thursday, private economists said the Federal Reserve Board moved to lower the federal funds rate, the interest on overnight loans between banks, to 3.75 percent from 4 percent. The Fed rarely announces changes in the fed funds rate, but economists, who analyzed the central bank's moves in the financial markets, determined the Fed had nudged it lower.
Carol Stone, economist for Nomura Securities International Inc., said other banks probably would follow Chemical's lead because the cut was only a quarter-point.
A reduction in prime rate generally affects interest on loans to small- and medium-size businesses.