'Govt cannot force banks to reduce interest rates'

The Tanaiste, Mary Harney, has said the Government has no power to force Irish banks to pass on yesterday's cut in European interest rates to their customers.

However, speaking in Dublin, Ms Harney said she would be angry and disappointed if the Irish banks failed to reduce their interest rates by 0.5% in line with the European Central Bank, which brought its main lending rate down to 2% yesterday.

Ms Harney said: "I would be confident that some players will pass it on. That will force others to do so.

"When interest rates go up, that's always passed on, so we can't have an a la carte approach in these matters. I would be very surprised and very disappointed and very angry if it wasn't passed on."

Fine Gael spokesman Richard Bruton criticised Ms Harney's attitude and said the Government's lack of action had contributed to the situation whereby banks are in a position to retain all the benefits of the interest rate cut for themselves.

Mr Brutin said: "While accepting that the Government could not force the banks to pass on the reduction there was many options open to the Fianna Fail-Progressive Democrats coalition and its recently appointed financial services regulator."

"They have the power to investigate the competitiveness of this sector, and clearly there are problems in that respect.

"They also have the power to name and shame and highlight banks that are not passing this on."