Bermuda's two main banks yesterday cut the Bermuda dollar base rate by 0.25 percent to 4.25 percent.

The Bank of Bermuda and Bank of Butterfield acted after the US Federal Reserve Board yesterday lowered short-term interest rates by 0.25 percent.

The Bank of Bermuda's head of Banking Services Michael Collins said: “The base rate represents the benchmark for pricing Bank of Bermuda demand loans, mortgage loans and overdrafts in Bermuda dollars. We have taken this action after balancing the Fed's latest move with factors in our own local market. Although we do not move in parallel with the Fed, we are impacted by their changes and over the long term respond in a similar fashion.”

At the same time as the base rate change, Bank of Bermuda will reduce certain deposit rates.Bank of Bermuda clients will receive confirmation of these rate changes on their next account statement and the new USD and BMD Passbook Savings account rates will be displayed in branches.

“The base rate and market interest rates have continued to fall since 2000, which has resulted in interest rates on loans and savings accounts being at record lows,” added Mr Collins. “Clients may benefit from extra cash each month if they have a loan or mortgage, but they are not seeing their savings grow as fast. The US economic outlook is still relatively uncertain and we do not anticipate the current environment changing significantly for the foreseeable future.”

The Bank of Butterfield's executive vice president and chief financial officer Richard Ferrett said the new rate was a record low.

“This is the lowest level that the bank's Bermuda Dollar base rate has been since its inception in April 1994.

“Customers with loans directly linked to the bank's Bermuda Dollar base rate will benefit from a 0.25 percent reduction in their borrowing costs with effect from Tuesday 1 July 2003.

“We are also reducing our US Dollar prime rate to four percent effective the same date.''

He added the bank would be giving notice to customers with Bermuda Dollar variable rate mortgages of a decrease in their interest rates by 0.25 percent. This would take effect from Tuesday 30 September 2003, he said. Customers with personal loans and/or mortgages at fixed rates of interest were unaffected by the change.

“With regard to Bermuda Dollar Strata Savings rates we have decided that these rates too require reducing to reflect current market conditions. As a result, the interest rate paid on Bermuda Dollar Strata Savings accounts with balances of $25,000 and over will reduce by 0.25 percent to 2.25 percent and accounts with balances of less than $25,000 will attract an interest rate of 1.75 percent. The Bermuda Dollar Passbook Savings rate will reduce by 0.25 percent to 0.75 percent.''

Mr. Ferrett said the bank's US Dollar Strata and US Dollar Passbook Savings rates would also be reduced.

“The rate paid on US Dollar Strata accounts with balances of US$25,000 and over will be reduced to 0.25 percent and accounts with balances of less than US$25,000 will reduced to 0.15 percent.

“The rate on US Dollar Passbook Savings accounts is being reduced to 0.10 percent. All Bermuda Dollar and US Dollar Savings rate changes will also take effect from Tuesday 1 July 2003.”