Word: benchmarking
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TIME's board warned, however, that a recovery is not assured. Reason: interest rates may still be too high to support an upturn. Since July, the benchmark prime rate on bank loans has dipped from 16% to 11.5%, but that level is 6.5 points higher than the 5% inflation rate. Historically, the cost of borrowing money has usually been only 2 to 3 points above the rate of price rises. Consumer credit remains discouragingly expensive. Bank of America, for example, charges 22% on personal loans...
Interest Rates. The benchmark prime rate charged by banks stood at 20% in January 1981 and averaged 18.87% for the entire year. The prime began dropping rapidly in July, and now stands at 13.5%, its lowest level since September 1980. Other borrowing costs are also receding. The interest on Government-insured home mortgages slid to 14% last week, from a high of 18% in September 1981. Falling rates should spur consumer purchases of big-ticket items and boost business investments. But many economists caution, that interest levels are unlikely to fall much further. The cost of borrowing might even increase...
...OPEC's price-propping ploy succeeds will depend on the willingness of members to abide by the agreement. In the past two years, weakening worldwide demand for oil has driven down the spot-market prices for crude until they were about $6 per bbl. below the official OPEC benchmark price of $34 per bbl. If prices continue to slide, cash-hungry producers such as Algeria, Venezuela and Nigeria will be tempted to offer under-the-table deals to potential customers in order to take sales away from other cartel producers. To monitor compliance, OPEC decided...
...most startling and significant example of this change in underlying trends is the price of oil. Nothing did more to propel inflation ever higher during the 1970s than the success of the Organization of Petroleum Exporting Countries in raising the benchmark price of a barrel of crude from $1.80 in 1970 to $34 now. Besides the skyrocketing increases in retail prices of gasoline, the spiral helped drive up everything from apartment rents, which are affected by fuel costs, to the price of food, which is hauled to supermarkets in diesel-burning trucks...
Normally, interest rates ease back during periods of economic slowdown, as credit demands by businesses and individuals decline. But except for a brief period late last year, rates have not declined much at all, and now they are headed up again. Several major banks last week raised the benchmark prime lending rate another .75%, to 16.5%. The jumps have been extremely discouraging for the Administration, since a downward trend in rates is necessary to spur the business investment boom that Reaganomics needs. The latest interest rate increases have also renewed worries in Western European countries that their costs of borrowing...