Citi raises prime lending rate to 4.5% from 4.25%

Citibank was the first bank to announce on Wednesday it would raise its prime lending rate to 4.5 percent, effective Thursday, after the Federal Reserve raised its short-term rate one quarter-point.

The Fed's move, announced on Wednesday, was widely anticipated. Banks typically follow suit with their own prime rate hikes. M&T Bank also said it would raise its prime rate to 4.5 percent, effective Thursday, while BB&T Corp. said it would raise to 4.5 percent immediately.

The prime rate is what banks charge to lend to their most creditworthy customers, including large corporations. It often sets the bar for other loans such as credit cards and small business loans.

The Federal Open Market Committee raised its target range to 1.25 percent to 1.5 percent from 1 percent to 1.25 percent.

Raising short-term borrowing costs can encourage banks to raise interest rates on loans to improve their profit, something that could be a boost to bank earnings in coming quarters.

The rates people pay on auto or educational loans aren't expected to jump right away, though loans that tend to be variable rate, such as credit cards, could be affected.