Raising by 0.25 percentage points the discount interest rate at which the US central bank lends directly to commercial banks, the Federal Reserve tightened monetary policy on Thursday for the first time in more than a year.

A statement said that the Fed's discount rate was hiked from 0.5 percent to 0.75 percent. The action was taken "in light of continued improvement in financial market conditions."

The more closely watched federal funds rate remains unchanged at a record low of near 0 percent. Both the federal funds rate and the discount rate had not been altered since December 2008.

As Wall Street recovered from a near collapse that began in September 2008, Fed Chairman Ben Bernanke had indicated earlier this month that the central bank was considering a monetary policy move.

The Fed further said that it hoped the new rate hike would encourage banks to seek short-term borrowing from private sources rather than the central bank as the financial sector stabilizes. (With Input from Agencies)