Prime Rate Hits 8-Year Low of 8.5%

Major banks nationwide, including Citibank, Bank of America and Chase Manhattan Bank, today reduced their prime lending rate from 9% to 8.5%, the lowest level in almost eight years.

Chase Manhattan, the nation’s third-largest bank, was the first of the major New York banks to announce a prime rate cut as the banking day began. Chase was followed shortly by Morgan Guaranty Trust Co., the fifth-largest U.S. bank.

Later the prime also was cut by New York-based Citibank, the nation’s largest bank; No. 2 Bank of America, based in San Francisco; No. 6 Chemical Bank of New York; No. 8 Bankers Trust Co. of New York; No. 9 First National Bank of Chicago, and No. 10 Wells Fargo Bank of San Francisco.

Benchmark Figure

The cut in the the prime--a benchmark used to figure interest costs on loans to banks’ corporate customers--was effective immediately and followed the Federal Reserve Board’s Friday reduction of its discount rate from 7% to 6.5%.

A cut in the discount rate is the most dramatic move the Fed can make to signal its intention to push interest rates lower to stimulate the economy.

Banks reduced their prime lending by a half-percentage point to 9% the last time the Fed cut the discount rate, from 7.5%, on March 7.

The last time the prime rate was at 8.5% was in June, 1978.

The interest rate cuts come despite the Commerce Department’s report last week that the overall economy, or gross national product, was rising at an annual rate of 3.2% in the first three months of this year, substantially stronger than a 0.7% rate of expansion from October through December.

Some Weaknesses

Economists said there were still weaknesses in areas of the economy and noted that the GNP report is subject to revision.

Both the March and April discount rate cuts were viewed as a coordinated effort on the part of the industrialized nations to reduce interest rates worldwide. On Saturday, the Bank of Japan announced it was cutting its discount rate to 3.5%, effective today.

The Fed’s March discount rate cut came only after the central banks of both Japan and West Germany had cut their discount rates.