Major Banks Drop Prime Rate to 81/2%: Cut Reflects Expected Economic ...
Major banks cut their prime lending rates by one-quarter of a point to 8V2 percent yesterday, reflecting a recent decline in interest rates caused by expectations of a slowdown in the economy.</br></br>The reduction in the benchmark rate will trim borrowing costs for many corporate and individual borrowers, furnishing a bit of a stimulus to an economy that is certain to turn sluggish in coming months, economists said.</br></br>Reagan administration officials welcomed the banksÛª move, which came amid growing worries that the economyÛªs growth during the election campaign will be so anemic that Republican candidates will be hurt.</br></br>The banksÛª action was prompted by a decline in the rates that the banks themselves pay on borrowed funds and on deposits. Those rates have been dropping because of the widespread expectation that an economic slowdown would diminish demand for loans by businesses and consumers. Additionally, the Federal Reserve is thought to be on the verge of easing credit conditions slightly, which is also helping to lower rates.</br></br>A fresh harbinger of a slowdown in the economy emerged yesterday when the Commerce Department reported that its composite index of leading indicators decreased in December for the third month in a row.