AIB is expected to follow Bank of Ireland and increase interest rates on variable rate mortgages.

Last week Bank of Ireland raised interest rates across the board with hikes for mortgage customers, credit card customers and for those with overdraft facilities.

Its mortgage rate is going up 0.5% from September adding around €90 a month in the bills for those with a €300,000 mortgage.

It said it had “no option” but to do so after deciding not to pass on the two previous European Central Bank interest rate increases so far this year.

Credit card interest rates will also be pushed up by 0.5% from October 17, while the cost of overdrafts will go up by the same amount from August 25.

The hike will see overraft rates jump from 14.8% to 15.3%.

Personal loan rates will go up by 0.25% on August 25.

Interest rates on business loans are going up by 0.5%.

The bank is also withdrawing credit interest on current accounts from November 21.

Richie Boucher, the chief executive of the bailed out bank, said the it could not keep absorbing higher funding costs.

The bank said it had been “a difficult decision” but that the bank had not increased variable mortgage rates for 12 months.

The decision however is at odds with moves across America and Europe where interest rates are expected to be frozen, possibly as long as two years.

In the US, the Federal Reserve has committed to near-zero interest rates until 2013, while in the UK there is talk that the Bank of England will cut interest rates before freezing them.

The European Central Bank, which was expected to introduce two or three more interest hikes before the end of 2012, has now indicated that there may be no more rises in the next 12 months because of the global financial meltdown.