Updated at 11:25 a.m., Tuesday, May 15, 2001

Hawai'i banks cut lending rates following Fed action

Two major Hawai'i banks today announced they are lowering their prime lending rates from 7.5 percent to 7 percent, effective tomorrow.

The moves by Bank of Hawaii and First Hawaiian Bank followed today's half-percentage point reduction in benchmark interest rates by the Federal Reserve Board. Other commercial banks in Hawai'i are expected to follow suit.

The Fed's interest rate cut is the fifth reduction this year to keep the struggling economy afloat.

The Fed said the rate cut was needed to combat various drags on the economy, including a decline in business investment in new equipment.

"This potential restraint ... continues to weigh on the economy," Fed policy-makers said in a statement.

The Fed said it was cutting its target for the federal funds rate, the interest banks charge each other on overnight loans, to 4 percent.

Many economists were predicting a half-point cut, though some believed policy-makers might opt for a more modest quarter-point,

The decision to cut rates came after the Fed's chief policy-making group, the Federal Open Market Committee, met privately. The committee is composed of Fed Chairman Alan Greenspan, Fed governors and five of the 12 presidents of Federal Reserve banks.

The Fed said its chief concern remains the threat of the economy stalling and falling into recession.

The Fed's half-point decrease in the funds rate was quickly followed by announcements from commercial banks such as those in Hawai'i reducing their prime lending rates by a similar half point, to 7 percent.

The prime rate is the key benchmark for millions of loans, from home equity and unpaid credit card balances to short-term loans for small businesses.