after the Island's three banks raised the Bermuda dollar base rate from six percent to 6.25 percent.

The decision by the Banks of Bermuda and Butterfield and Bermuda Commercial Bank to raise the base rate follows a similar move in the United States last week.

The base rate represents the benchmark for pricing all bank demand loans and overdrafts in Bermuda dollars. Individual loans and overdrafts are set at a spread or margin over the base rate. Generally the margin is two percent higher than the base rate.

That means that borrowers will see their total interest rate payments climb from an average of eight percent to 8.25 percent.

Bank of Butterfield executive vice president-group banking Colin Furr said he did not expect the rate of borrowing to fall significantly as a result of the rate hike.

"With a rate change, most people would be paying more for funds, which tends to have an impact on borrowing, but I don't expect a great change,'' he said.

The banks also said they are now reviewing deposit rates and mortgage rates.

"Although there is no immediate change to deposit rates, we are currently reviewing all of our Bermuda dollar deposit rates, together with our mortgage rates,'' Mr. Furr said.

"The bank's Bermuda dollar deposit rates are under review at this time,'' Bank of Bermuda said.

Bermuda Commercial Bank said its deposit rates will likely move up a quarter point.

Bermuda Home Ltd. president and CEO Arthur Haycock said there will be no immediate change of rates at the financial institution.

"I don't believe there will be a change to (Bermuda Home's) long term mortgage rates. We might have to follow the bank's lead on shorter term personal loan rates.'' He also said not to expect any immediate change to Bermuda Home's deposit rates.

The base rate was established in Bermuda in April, 1994 as a result of the deregulation of interest rates.

Today's increase to the Bermuda dollar base rate follows a preemptive strike on the overnight bank lending rate by the US Federal Open Market Committee.

On Wednesday, Fed policymakers, convinced healthy US economic growth will translate into higher inflation, raised the overnight rate a quarter point to 5.5 percent. The increase was the first in two years.