Major Banks Raise Prime Rate to 8%

Acting on cue from the Federal Reserve Board, major U.S. banks raised their prime lending rate by another quarter point to 8% today, the second such increase in a month.

Federal Reserve Chairman Paul A. Volcker acknowledged Thursday that the government had been nudging interest rates higher in an effort to defend the faltering dollar and halt a troubling rise in inflation. It is hoped that higher U.S. interest rates will attract foreign investors and strengthen the value of the dollar, which has been hitting new post-war lows against the Japanese yen almost daily.

The Fed action and the banks’ reaction were the latest signs that U.S. interest rates have begun a general rise after falling from 13% in September, 1984, until beginning the current rise in March.

Today’s quarter-point increase followed a similar rise March 31, when most banks began increasing their rates to 7.75% from 7.5%.

The largest U.S. bank, Citibank, was the first to boost its base rate, which is used as a benchmark for a variety of business lending rates. Other big banks around the country, including California’s largest financial institutions, quickly followed.

The Fed’s new tight-money policy is partly a response to a higher than expected spurt of inflation in the first three months of the year, economists said. The first-quarter increase in the consumer price index was 6.2%, higher than all but the most pessimistic forecasts.

Japanese Prime Minister Yasuhiro Nakasone, in Washington for talks with President Reagan, said Thursday that he had ordered Japan’s central bank to lower short-term interest rates as part of an effort to stimulate the Japanese economy.

But the Bank of Japan has no plans to lower Japan’s 2.5% discount rate, the rate at which the central bank lends money to banks, central bank sources in Tokyo said today.