Four Reserve Banks Up Discount Rates
The Federal Reserve Board yesterday fired its expected salvo I in its fight against inflation, approving discount rate rises in four districts. Starting today, commercial banks must pay 3 per cent for funds borrowed from Reserve banks in New York,</br></br>Commercial banks expected the move and earlier this week hiked their prime rate, the money charge to top borrowers. Thus the ReserveÛªs action was seen as primarily a symbol.</br></br>A Board spokesman said it reflects a belief that, ÛÏthe business outlook appears good. We donÛªt want it upset by credit excesses.Ûª*</br></br>But a practical effect will be to make it more expensive for banks to add to their reserves by borrowing and enlarge their lending power. This, Reserve officials hope, will induce banks to turn down marginal borrowers.</br></br>Reserve aides are hoping to stretch out the swelling plant and equipment boom through next year. They are alarmed over a growing tendency to pay for this capital expansion through short-term bank loans instead of borrowing at the climbing long-term rates.