Amid a blizzard of official predictions that interest rates soon will decline, two large banks raised their prime lending rate back to 20 percent, joining most other major lending institutions, which never lowered the rate.
Citibank, New York's largest, and Chemical Bank, also of New York, raised the key business lending rate because of a sharp jump last week in the so-called federal funds rate, the interest banks charge each other for overnight loans of excess reserves and a rate that largely can be controlled by the Federal Reserve, the nation's central bank.
Even as Citibank and Chemical Bank were raising their prime lending rates, Vice President George Bush, Treasury Secretary Donald Regan and Federal Reserve Vice Chairman Frederick Schultz predicted that the near-record interest rates will decline.
Regan said that the Federal Reserve is in the process of getting the growth of the money supply "under control," and that more stable money growth will result in lower rates. He would not say how extensive the decline would be, however, in an appearance before an American Stock Exchange conference in Washington.
Bush, however, at the same conference, said high interest rates will "come down rapidly" as soon as the public recognizes that President Reagan is "determined to grab control of the budget and of the deficit."
As if to vindicate the offical predictions, short-term interest rates in the so-called open market -- where banks and businesses alike raise funds -- declined today.
The federal funds rate, which rose as high as 21 percent last week and started today in the 19 3/4 percent range, dropped back to about 18 1/4 percent late this afternoon, according to Thomas Kane of the Bank of New York. The decline was helped by the Federal Reserve itself, which at 11:45 a.m. injected funds into the banking system. To inject funds into the system, increasing the ability of banks to make loans, the central bank buys government securities.
Other short-term rates fell, too. The rate on one-month certificates of deposit declined from about 18.50 percent Friday to 18.15 percent today, according to Kane, and the rates on six-month certificates fell from around 16.45 percent to 16.10 percent. Certificates of deposit are a major source of funds for big banks.
"Citibank and Chemical were a little premature with their prime-rate cuts," said an official of a major bank that did not cut its prime rate. Chemical last week cut its key business lending rate to 19 percent, then edged back to 20 percent in two steps.
The prime rate is the interest charge on which banks base most of their lending to businesses. Big, credit-worthy companies that need funds for a short time often pay less than the prime rate, while smaller or less credit-worthy companies often pay more.
Leif Olsen, chief economist at Citibank, said sharp increases in interest rates last Wednesday and Thursday impelled the nation's second biggest bank to return to the 20 percent level.
Interest rates have been raised and lowered for the last year, principally because of the Federal Reserve's concentration on controlling the growth of the money supply (essentially checking accounts and cash) rather than interest rates.
The Fed's Schultz, who also spoke at the Amex conference, said interest rates should become less volatile as economic policies of the Fed and the Reagan administration begin to reduce inflation.