November 16, 2018 / 2:45 PM / 6 months ago

MONEY MARKETS-Dollar LIBOR increases for 13th straight week

Nov 16 (Reuters) - A key barometer of what banks charge each other to borrow dollars for three months rose for a 13th week as traders expect the U.S. Federal Reserve to raise short-term lending rates next month.

The London interbank offered rate (LIBOR) to borrow three-month dollars climbed 0.45 basis points to 2.64450 percent, the highest level in a decade. For the week, it gained 2.6 basis points.

During this 13-week stretch of increases, three-month LIBOR has risen about 33 basis points.

In addition to expectations of further Fed rate increases, three-month LIBOR has climbed on rising U.S. government borrowing and a shrinking Federal Reserve balance sheet.

LIBOR is the benchmark rate for $200 trillion of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

Fed policymakers are expected to raise the target range on key lending rates at 2.25-2.50 percent at a two-day meeting on Dec. 18-19, marking their fourth rate increase in 2018.

The “effective” or average rate on federal funds, what banks charge each other to borrow excess reserves overnight, remained at 2.20 percent for a third day on Thursday, New York Federal Reserve data showed on Friday.

The effective Fed funds rate stayed at parity with what the Fed pays banks on the excess reserves they leave with the central bank (IOER). There have been concerns that the fed funds rate would rise above IOER, which may raise worries about whether Fed policy-makers are losing their grip on monetary policy.

Reporting by Richard Leong; Editing by Bernadette Baum

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