Bermuda's two biggest banks cut interest rates yesterday in line with a concerted move by central banks around the world to shore up the sinking sector and unfreeze credit markets.

The news will be welcome to local variable mortgage holders and those seeking new loans as both Butterfield Bank and Bank of Bermuda now have a base rate of 3.75 percent.

Butterfield Bank said it would reduce its base dollar rate by 0.50 percent — the same cut announced by the US Federal Reserve and several other central banks around the world. "This morning in a coordinated action, the US Federal Reserve, European Central Bank, Bank of England, Bank of Canada and several other central banks lowered their overnight rates by 50 basis points," said Butterfield's chief financial officer and executive vice-president Richard Ferrett of the decision. "We are pleased to pass on the benefits of this decision by lowering interest rates to our customers who borrow from us at rates linked to the bank's Bermuda dollar base rate."

Butterfield customers with existing variable rate residential mortgages will see a 0.50 percent reduction in their interest rates from January 7, 2009. "Customers with personal loans and mortgages at fixed rates of interest will be unaffected by the change," Butterfield Bank added. It was the third cut of the year for Butterfield, taking its base rate from 5.25 to 3.75.

Later in the day, HSBC Bank of Bermuda announced it would also bring its base rate for personal lending to 3.75 percent — a 0.25 percent cut.

"Bank of Bermuda decided today to reduce loan rates in concert with the actions taken by central banks around the world," said CEO Philip Butterfield. "Customers will recall that we reduced interest rates by 0.50 percent in January and 0.50 percent in March. In total, we have reduced borrowing rates for all of our customers by 1.25 percent during 2008.

"We continually monitor global interest rate trends in order to provide competitive rates to our customers. In determining our base rate, Bank of Bermuda takes into account a number of factors not limited to but including, the US Federal Funds Rate, along with local market conditions, so we can provide the best possible service to our customers."

Capital G Bank elected not to follow its competitors, however, saying it will continue to monitor developments. "Given that the global market continues to exhibit significant volatility and taking into account the needs of both borrowing and depositing clients we are not making any changes to our BMD rates at this time," said president and CEO John Kephart.

"We continue to monitor markets and competitive pressures and will review on an ongoing basis to determine whether changes to our rates are necessary."