In action triggered by the recent increase in the federal funds target rate, the Federal Reserve Board has also approved increases of 75 basis points (bp) in the short-term credit rates in effect at the Federal Reserve Banks and in the interest rate paid on financial institutions’ reserves with the Fed system.
The changes were published in Federal Register notices Wednesday and became applicable June 16, the notices state.
The primary and secondary credit rate increases were implemented under revisions to the Fed’s Regulation A on reserve bank extensions of credit. The 12 Federal Reserve Banks make primary and secondary credit available to depository institutions as a backup source of funding on a short-term basis, usually overnight. The Fed Board on June 15 approved a 0.75 percentage point increase in the primary credit rate in effect at each of the 12 reserve banks, raising that rate from 1% to 1.75%. The secondary credit rate, which by formula is 0.50 percentage points over the primary rate, increased from 1.5% to 2.25%, the Fed said.
The rate of interest paid on reserve balances (IORB) that financial institutions maintain at the reserve banks was also raised under a revision to the Fed’s Regulation D. the IORB was increased 75 bp to a rate of 1.65%.
Again, these changes were triggered by the Federal Open Market Committee’s (FOMC) increase June 15 in the federal funds target rate. That target rate was increased 75 basis points to a range of 1.5% to 1.75%.