Fine Gael leader Enda Kenny has said Finance Minister Brian Lenihan has the power to stop Permanent TSB increasing its standard variable mortgage interest rate.
The half a percentage point increase from Monday will affect more than 50,000 customers.
Minister Lenihan said he is disappointed by the decision but said it reflects commercial market realities.
The Minister also said removing any bank that increases rates to customers from the state guarantee scheme would mean even higher costs for mortgages.
However, Enda Kenny said he regards this as an abuse of the taxpayers’ guarantee.