RBC and TD Bank say they are increasing their prime interest rate by 25 basis points following the Bank of Canada's rate announcement.

The central bank said Wednesday it was increasing its key rate by a quarter of a percentage point to 0.5 per cent in a bid to help fight inflation which is at its highest level since 1991.

RBC and TD's increases push their prime rates to 2.70 from 2.45 per cent, effective March 3.

The rise in rates will increase the cost of loans such as variable-rate mortgages that are linked to the benchmark, but won't directly affect fixed-rate mortgages.

Other banks are expected to follow with rate increases as well.

The Bank of Canada said it would likely need to raise rates further to reduce inflation, which hit 5.1 per cent in January.