Bank of Bermuda announced its lowest base rate in seven years since the variable base rate was introduced in the bank -- and mortgage holders' rate is now at its lowest level in 20 years.

The borrowing cuts came after the US Federal Reserve once again slashed its key interest rate for the fifth time this year on Tuesday in a bid to halt a slow down in the economy.

The base rate change -- the rate of interest which forms the basis for the charges of bank loans and deposit rates of banks -- means that only the Island mortgage holders and those with bank loans will get a reduced rate on the cash they have borrowed.

But it is bad news for savers, who will get a lower rate of return on the cash they have saved in the bank.

Yesterday, the Bank of Bermuda cut its base rate by 0.25 percent to 5 percent.

The rate will become effective on June 1, 2001.

Alan Richardson, executive vice president, retail clients, said: "We constantly monitor local and international market conditions so that we can adjust interest rates on our various loan and deposit products on a timely basis.

"After considering local and international factors, we decided to lower our base rate.'' By lowering the base rate, Bank of Bermuda and Bermuda Home mortgage rates are now at their lowest rate in over 20 years, the bank said when it made the announcement.

"Market interest rates will vary over time. Our commitment, however, remains to provide long term value to our customers, as the premier bank in Bermuda,'' said Mr. Richardson.

Bank of Bermuda said that its loan and mortgage customers will receive confirmation of their new rates on their next account statement. Customers wanting further information have been asked to contact their account administrators.

Bermuda's strong ties to the US economy has influenced the change in the rate, but the bank said that the change in the Federal Reserve is not the only consideration in the change.

On Tuesday the Federal Reserve cut interest rates by half a point -- the fifth reduction of the year 2001.

In making the announcement, the Fed said it was making the change to combat various drags on the US economy, including a decline in business investment in new equipment.

"This potential restraint continues to weigh on the economy,'' the Fed said in a statement.

The cut took the target for federal funds rate -- the interest banks charge each other on overnight loans -- to four percent.

The Fed's action comes against the backdrop of a beleaguered US manufacturing sector, which many believe is in a recession of its own and a weakened job market.

The cuts lower borrowing costs and are designed to spur consumers to spend and businesses to invest -- both of which economists hope will bolster economic growth.

On Tuesday Capital G (Gibbons Deposit Co) announced it was cutting its lending rates in Bermuda dollars. For loans less than 15 years, the rate was set at 7.75 percent, and for over 15 years at 8 percent.

Bermuda dollar daily savings rate was also changed -- to 3.75 percent for accounts with less than $25,000 and for accounts with more than $25,000, to 4.25 percent.