Interest Up

After member-bank borrowing hit a 21-year high in December, the Federal Reserve Board last week approved the tightening up of bank credit. Eight of the twelve FRB banks immediately boosted from 1 3/4 to 2% the interest rate at which member banks may borrow money from them. By thus putting a light brake on borrowing, the FRB sought to tighten the money supply, thereby help prevent any further inflation. Bankers were surprised not at the boost but at its timing. Most expected an increase last fall, when borrowing began to pick up, instead of last week, when it was just beginning to taper off seasonally.

Although the FRB's interest rates generally set the pattern for the entire U.S., few bankers thought the boost would cause an immediate increase in the prime rate (now 3%) that banks have been charging on commercial loans. Actually, most bankers thought that the FRB action was to bring its rate more in line with commercial rates and to clear the way for the Treasury refunding of $8.9 billion of 1 7/8% certificates due Feb. 15.

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