Jan 4 (Reuters) - The U.S. interest rate that banks charge each other to borrow excess reserves averaged 0.20 percent on Dec. 31, marking the first time it has settled below the lower bound of the Federal Reserve's target range since policy makers raised interest rates two weeks earlier.
The fed funds effective rate, which the Fed targets to achieve its rate objective, had averaged 0.35 percent on Dec. 30, and had settled between 0.35 percent and 0.37 percent each day since the Fed on Dec. 16 announced an increase to its target range. The new target range is 0.25 percent to 0.50 percent, up from 0.0 percent to 0.25 percent, where it had been since December 2008.
The effective rate on Dec. 31 traded in a range of 0.08 percent to 0.63 percent amid the end-of-year rush for overnight funding, compared with 0.28 percent to 0.63 percent the day before.
(Reporting By Dan Burns)