BANK of Ireland has followed Irish Permanent in raising interest rates, with the other financial institutions expected to follow shortly.

Bank of Ireland yesterday put its variable mortgage interest rates up by 0.2 of a percentage point from 7.25 per cent to 7.45 per cent.

Business borrowing rates increased by a slightly bigger margin, with overdraft rates rising by 0.25 of a percentage point to 9.95 per cent. The increase brings these rates back to where they were before the last reduction in interest rates, according to the bank.

For savers, the bank has added a half a percentage point to its previous rates.

Depositors with up to £5,000 in a Bank of Ireland, reserve, account will the rate of interest rise from 2.25 per cent to 2.75 per cent. Investors with sums of more than £50,000 will now be paid a rate of interest of 4 per cent, up from 3.5 per cent.

On Thursday, the State's biggest mortgage lender, Irish Permanent, moved to increase its interest rates, adding 0.25 of a percentage point to its mortgage and other lending rates. It raised its main variable mortgage rate from 6.75 per cent to 7 per cent.

Yesterday, the other main banks and building societies were monitoring their rates, with most now expected to move next week.

For most borrowers, the impact of the latest rise in interest rates will be fairly modest, adding around £6 to monthly repayments on a 20 year mortgage of £40,000.

A bigger increase in mortgage rates was averted on Thursday following a larger than expected cut in German interest rates. Commentators had been expecting that bank and building society rates would go up by a half of one per cent due to a rise in wholesale interest rates.

Money market rates on the Dublin market continued to trade at just over 5.5 per cent, the level which triggers an upward move in retail rates.