Clarien Bank and Butterfield Bank will increase their base lending rates by a quarter percentage point after a much expected announcement from the Federal Reserve that US rates are rising by a quarter point to the highest levels in more than two decades.

Clarien said: “Clients will receive letter notices specifically detailing the change applicable to their loan, including when those changes will be applied to their loan in line with their individual loan agreement. In certain cases, the regularly scheduled loan payment will increase to ensure that the loan is repaid by the scheduled maturity date.”

The bank will be increasing both US dollar and Bermuda dollar rates, with all changes effective from September 1.

Its move comes as central banks globally raise the cost of money in the battle with inflation, with consumers struggling to make ends meet as prices remain elevated and in some cases continue to rise.

Bermuda is already one of the most expensive jurisdictions in the world, and the island is facing a housing crisis.

At Clarien, Bermuda dollar personal base rates on loans, mortgages and overdrafts will go from 6 per cent to 6.25 per cent. Bermuda dollar commercial base rates, also on loans, mortgages and overdrafts, will go from 6.25 per cent to 6.50 per cent.

The cash-secured base lending rate will rise from 6.50 per cent to 6.75 per cent. The US dollar Prime Rate for personal and commercial loans and mortgages has been increased from 7 per cent to 7.25 per cent.

Butterfield Bank said: “The Bank of N.T. Butterfield & Son Limited announced that, in response to today’s 25 basis-point increase in the target range of the US federal funds rate, it is adjusting its base interest rates on consumer loans and mortgages by a quarter of a percentage point.”

The statement added that US dollar consumer loans are affected, as are Bermuda dollar mortgages and consumer loans. For most loans, the changes are effective from July 31, but for existing mortgages, the increase will take effect in 90 days.

On Tuesday afternoon, the US Federal Reserve increased the federal funds rate to a target range of 5.25 per cent to 5.50 per cent, from a target range of 5 per cent to 5.25 per cent.

“Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated,” the Federal Open Market Committee, which decides the rate, said in a statement after the change was announced.

“The committee remains highly attentive to inflation risks.” it added.

At a press conference after the rate decision, Jerome Powell, the chairman of the Federal Reserve, said that more rate increases are possible depending on what the data show.

The Fed did not raise rates at its meeting in June, after increasing them steadily from near zero in early 2022. The latest move came as no surprise to the markets as the Fed has been signalling that it remains vigilant in the face of pricing pressures.

HSBC Bermuda said that it had not yet increased its lending rates.

“Currently our rates remain unchanged,” a representative said by e-mail.

Bermuda does not have a central bank. Rates are adjusted by the commercial banks, normally in line with changes in dollar interest rates in the US, though the banks will often lag moves by the Federal Reserve.