percent to customers says Parliamentary Secretary for Finance the Hon Grant Gibbons .

A Parliamentary question was asked by the Senate's Opposition Finance spokesperson Sen. Terry Lister concerning what measures Government would take to ensure that the Bermudian populace was not faced with alarmingly large increases in the cost of borrowing money given that banks were now charging an interest rate of 9.5 percent to customers.

But Sen. Gibbons replied that it was misleading to say that Bermuda banks were now charging interests rates of 9.5 percent since the interest rate structure was far more complex than that.

He added that following the lifting of the ceiling on interest rates, "finder's fees'' and "credit charges,'' the banks had established a Base Rate covering conventional Bermuda dollar loans and overdraft facilities which was linked to the cost of funds to the banks.

"Total interest charged to customers includes a spread over the Base Rate and this spread is assessed on the basis of the risk and term of the loan involved.'' Sen. Gibbons also said that the decision by the banks to raise their Base Rates from 6.5 percent in late May was in response to the 1.25 percentage point increase in short-term interest rates by the Federal Reserve in the United States during the course of the year.

"As a result of that action by the Federal Reserve the gap between short-term Bermuda dollar and US dollar deposit rates had widened. That prompted the Bermudian banks to raise their short-term Bermuda dollar deposit rates which clearly benefitted local depositors.

"However, on the other hand, the cost of borrowing by locals went up.'' He added that the increase in the Base Rate did not apply to consumer loans or credit cards.

In addition, the rates of interest on the majority of mortgages remained within a range of 8.5 percent to 9.0 percent depending upon maturity.

"It is somewhat mischievous to imply that Bermuda banks are now charging interest rates at a flat rate of 9.5 percent.

"The supply of money, like any other commodity, is largely determined by its price. The interest rate ceiling at times acted in a similar fashion to price controls. Just as prolonged price controls will deter the supply of any commodity so interest ceilings will deter the supply of money.'' Sen. Gibbons added that when US interest rates were high in the 1970s and '80s, Bermuda dollar liquidity dried up there were no Bermuda dollars available. Borrowers were forced to take US dollars at the going US dollar rates of interest which were far in excess of the statutory controlled local rates.

"While US short-term interests rates may increase further by the end of 1994, as the Federal Reserve takes a more restrictive monetary policy stance, these rates are unlikely to rise significantly and will remain well below the average of the 1980s.

"It is a fact that the Federal Reserve has adopted this restrictive policy stance in order to dampen inflationary pressures.

"The future level of US short-term interest rates will be determined to a large degree by the extent to which the Federal Reserve is successful in preventing any increase in the rate of inflation.''