The Finance & Leasing Association (FLA)
has announced that the Finance House Base Rate will probably drop
by half a percentage point next month.
The current rate was held steady at the end of
April at 1.5%, which has been the rate since the beginning of the
year.
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The rate is likely to drop to 1% in June, though the FLA
cautions that it may remain at 1.5% if the current trend in
three-month money costs slows.
The Finance House Base Rate provides FLA member
companies with a base on which to calculate lending charges in
certain industrial and commercial contracts where it is appropriate
to vary rates during the period of the agreement. It is used, for
example, in banking type transactions as well as in connection with
stocking loans to dealers. It is also widely used by non-FLA
members.
The rate is calculated at the end of each month by averaging the
cost of three-month money in the interbank market over the previous
eight weeks. The resulting figure is then rounded up to the next
half point. The process is entirely arithmetical and contains no
discretionary element. The rate is worked out on the last Friday of
each month and the resulting figure becomes effective from the
first day of the following month.
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