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Cutting interest rates makes economic sense

The government owns AIB. Therefore, AIB must be told to reduce variable mortgage rates by two percent and not just by the quarter of a percent they announced. Other banks are sure to follow, or else AIB will gain market share.

A two percent interest-rate cut, applied to an average mortgage of €250,000, at 300,000 customers, means a saving of €1.5bn. A conservative economic multiplier effect of five would mean an extra €7.5bn to be spent in the economy, creating jobs and sustaining current ones.

Furthermore, a rate reduction for personal borrowers, from 10% to 4%, would boost sales of new cars, household goods, etc.

The cost of funds for a bank is the rate they offer deposit holders and the rate at which they borrow. Bank of Ireland’s on-demand deposit rate is 0.01%. They can borrow at close to 0%, while charging business 0.6% to lodge.

Pat McCarrick

Ballymacormack

Athlone Road

Co Longford


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