0.5% ECB cut may not be passed on

BORROWERS may not get the full benefit of the 0.5% cut in interest rates announced by the European Central Bank.

Ironically, intense competition for deposits may force lenders to keep deposit rates up in order to fund the high demand for money in the economy for mortgages.

Felix O’Regan of the Irish Bankers’ Federation said the banks had “to make it worth depositors’ while to put their money on deposit. The other option is to put it under the mattress,” he said. And with official ECB rate now at 2.75% the lowest for decades, a corresponding cut in deposit rates could seriously damage the inward flow of funds, he said.