base lending and deposit rates up by one half of one per cent to 6.5 percent.

But although Butterfield's changes took effect today, the Bank of Bermuda has made its changes effective next Monday.

Mr. Alan Richardson, who in July joins the executive board of the bank as senior vice president of retail banking, said, "Recent changes in regulations governing exchange controls and interest rate controls have tied Bermuda dollar interest rates more closely to US rates with both depositors and borrowers now permitted increased flexibility in holding US dollar assets and obligations.

"With the recent increase in US dollar interest rates which have risen by 1.25 percent over the past three months, the bank has decided to increase Bermuda dollar deposit rates to encourage depositors to maintain and increase their Bermuda dollar deposits.'' The 6.5 per cent base lending rate will be added to a spread of between 1.5 and 3 percent, depending on how you qualify, to make up the total charges for the loan.

Mr. Richardson conceded that the changes will increase the cost of borrowing and may have an effect on people's ability to seek financing.

"It is just a real reflection of the US economy and an exercise of Bermuda's newly freed, floating interest rates,'' he said, adding that the bank hoped the increase in deposit rates would encourage savings.

"We want to see continued confidence in the Bermuda dollar,'' he said.

"People should be pursuing longer term objectives, rather than short term goals.'' Mr. Richardson was not overly concerned that the interest rates in the US would continue to drive the local rates up. He said he felt the prevailing view at the time the interest rates were floated was that, although rates might rise in the short term, and be seen in the US as modest corrections, they would not be expected to rise significantly.