European Central Bank president Christine Lagarde announced an immediate increase of half a point in official interest rates, and said the European Central Bank plans to hike by a further half a point in March, as it doubles down in fighting inflation.
Delivering a hard line message, the president told a media conference that the ECB "will stay the course" to tame underlying inflation pressures, which she said were still "alive and kicking".
AIB responded with significant increases in both its fixed and variable mortgage rates, while all banks will also automatically pass on the latest ECB increase to the 270,000 Irish households who hold tracker mortgages.
Michael Dowling, a leading mortgage broker, said AIB was the first of the main mortgage lenders to increase its variable home loan rates since the ECB started hiking official rates last summer.
AIB had also raised its most popular fixed rate mortgages that will increase household monthly repayments by €60 to €90 a month, depending on the maturity terms and based on a loan of €300,000, Mr Dowling said.
Stephen Hamilton at MortgageLine said fixed mortgage rates which were as low as 1.95% last summer have since increased to over 3%. More increases are expected, he said.
The ECB decision comes after the Bank of England also raised UK rates by half a point, but contrasts with the US Federal Reserve which increased its rates by only a quarter of a point on Wednesday night.
However, financial markets still believe that the end of ECB rate increases will come to an end later this year.
Ms Lagarde told reporters that the central bank would again reassess the outlook for inflation and interests rates at the March meeting.
She noted that the eurozone economy expanded only slightly late last year, with manufacturing activity slowing sharply.
However, the economy has been "more resilient than expected" and will recover in the coming quarters, she said.
On inflation, Ms Lagarde said the easing of energy price pressures had helped reduce the headline rate of inflation, although food price inflation was still rising.
She said the Ukraine war could still reignite pressures on the eurozone economy, but on the other hand energy price pressures could ease faster than forecast.