Banks urged to pass on full rate cut
Yesterday's 0.5% rate cut by the European Central Bank was the third in seven months.
However, despite interest rates hitting an historic low of 2%, ECB president Wim Duisenberg did not rule out a further cut.
For borrowers, a full cut of 0.5% would knock €28 off the monthly repayments of a €100,000 mortgage over a 20-year period.
However, Fine Gael enterprise spokesperson Phil Hogan said banks and building societies stand to make at least €100,000 a day if the full cut is not passed on.
He said loans of more than €19bn have been granted in the past five years.
As almost two-thirds of new loans were on variable rates, lending institutions would save more than €3m each month by not passing on the full rate cut immediately.
The Irish Financial Services Regulatory Authority, will be monitoring the situation. National Irish Bank last night announced a full reduction in its mortgage rate.
Interest on mortgages will fall to 3.25%, a reduction of 0.5%. a saving of €308.64 a year on a mortgage of €100,000.
However, it was unclear last night if other institutions would follow suit. Bank of Ireland said recently that a full reduction of 0.5% would knock between €12-15m off its profit.
AIB would suffer a similar fate, while the impact on Irish Life & Permanent would be close to €10m.
While the latest cut is good news for borrowers, it is bad news for savers.
With interest rates at historic lows, putting money on deposit is costing people money, because their capital is being eroded by an inflation rate that is almost double the stingy deposit rates now on offer.
Yesterday's move by the ECB brought rate levels closer to the more aggressive US Federal Reserve, which has brought its key rate down to a 41-year low of 1.25%.
Mr Duisenberg said if the Fed could contemplate further cuts, then there was more room for manoeuvre in the eurozone.
"We have now reached interest rates which we have not seen in any member country. They are historically low," Mr Duisenberg said.
