November 8, 2018 / 6:28 PM / 4 days ago

MONEY MARKETS-LIBOR posts biggest rise in a week before Fed statement

Nov 8 (Reuters) - A key gauge of what banks charge each other to borrow dollars for three months recorded its biggest gain in a week on Thursday in advance of the Federal Reserve’s latest policy statement for release later in the day.

The London interbank offered rate to borrow three-month dollars increased over 1 basis point to 2.61463 percent, the highest level in a decade.

Three-month LIBOR has risen in 16 of the last 17 sessions, prompted by the Fed’s rate hikes, 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 policy-makers are expected to leave the target range on key lending rates at 2.00-2.25 percent following a two-day meeting that began on Wednesday.

Traders expect they would raise interest rates by a quarter point at its Dec. 18-19 meeting, marking their fourth rate increase in 2018. They await possible clues on their current view on the number of rate increases in 2019.

The Fed will release its latest policy statement at 2 p.m. (1900 GMT).

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.

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 Susan Thomas

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