The Bank of Bermuda yesterday defended its decision to hike interest rates on personal loans last month ? the action coming just 17 months after it first launched a campaign to attract customers by slashing personal loan rates by 0.50 percent, bringing its varying rates to as low as 6.5 percent.

Since the latest increase, the bank?s lowest variable rate for a personal loan now sits at 7.25 percent.

In a letter to , a mortgage holder who wished to remain anonymous, noted that the hike was ?interesting? since early this year they lured people over with a decreased rate.

?I knew it was too good to last,? they wrote.

A bank spokesperson said, however, that the decision to increase credit base rates as well as the Bermuda dollar and US dollar savings rates by 0.25 percent on September 21 followed an August 23 decision by the US Federal Reserve Board to raise the Federal Funds Rate by 0.25 percent.

?Since the Bank launched its campaign in April 2004 advertising the lowest personal loan rates in the Bermuda market, the Federal Reserve Board has increased the Federal Funds Rate 11 times, whereas Bank of Bermuda has only increased its rate three times in this period, in November 2004, December 2004 and August 2005.?

She added: ?The Federal Funds rate again increased by 0.25 percent on September 22, 2005. Bank of Bermuda has not increased its credit base rate as a result if this latest rise.?

As for the anticipated future direction of local interest rates, the spokesperson said: ?Ian Morris, Chief US Economist for HSBC Securities stated last month during his visit to Bermuda that we are remaining at the top of the current interest rate cycle and that interest rates may begin to fall off toward the end of 2006.?