Gillian Bowler, Chairman, Irish Life & Permanent plc and Kevin Murphy, Group Chief Executive

Around the globe central bankers are cutting rates and loosening monetary policy. Ben Bernanke, the world's most powerful central banker, has said it's much too early to raise rates from their historical low level of near zero. They will simply have to remain close to zero for an "extended time" with interest rate policy being used to foster economic recovery, he told Congress last week.

Bernanke, Mervyn King, President Hu Jintao, Gordon Brown, Nicolas Sarkozy, Angela Merkel and Barack Obama all believe, rightly or wrongly, that a combination of historically low rates and mountains of stimulus money can revive the global economy or at least halt the rate of decline in output and the loss of jobs.

But here in Ireland the opposite course is being taken, with mortgage rates rising courtesy of Irish Life & Permanent (IL&P) and the government eschewing an emergency stimulus plan due to its tight budgetary position.

The decision by IL&P makes sense from its perspective. The 0.5% increase adds €35m to the IL&P bottom line in a year when the company is expected to be loss making at an operating level. The bank is simply paying out too much on deposits while not recouping sufficient return on mortgages, both tracker and variable versions. Unfortunately variable mortgage holders have no protection and are an easy target.

IL&P's net interest margin, which is the difference between interest income (loans) and interest expenses (deposits) is shrinking and IL&P, as is its right, is trying to bring it more into balance.

The recipe will be followed by other banks here. UK banks which are located here have been doing it already. The tight margins on loans is one of the reasons banks are not giving out any loans.

But while the IL&P decision seems a straight forward case of tipping the bancassurer's cost:income ratio in the right direction, things are always a little more complicated and those complications drag the controversial bank guarantee scheme back into the debate.

IL&P is not really interested in being a bank anymore; it wants to split itself in half. Only 9% of its operating profits last year came from banking activities; 72% came from its life business. In that context mortgage hikes are really a zero sum game. So what if the hike results in lots of customers switching? IL&P may soon conclude it no longer wants to be a mortgage lender.

But there is another reason that IL&P is the first Irish bank to attempt a rate increase while the ECB is moving in the other direction. IL&P is an extraordinarily highly leveraged bank by world standards.

Its loan-to-deposit ratio, the amount of loans divided by deposits, stands at a staggering 274%, according to the last set of annual figures it published. It actually grew from 266% the year before.

This high ratio means IL&P has a huge dependence on external funding via the inter-bank markets and the ECB. The only way it can tackle this, according to its own annual results statement, is through garnering more deposits and shrinking its balance sheet, which is mainly made up of loans.

It is in that context that last Friday's developments must be seen. It's galling to taxpayers having advanced IL&P and other institutions a sovereign guarantee to later see the results of this in higher mortgage rates. But of course the other argument can be made - rates would be higher if the guarantee was not available because IL&P's cost of funding would be astronomical.

Still this explanation does not salve the wounds of consumer indignation. That indignation has a righteous element to it. IL&P, along with other banks, heavily leveraged itself up over recent years and this is what has caused them to become so dependent on external funding.

Now the company is citing this very dependence on external funding (and its attendant costs) for its need to hike up rates.

It's all very depressing.