ECB rate cut may be first of three that will save families €90 a month
Published 04/11/2011 | 05:00
And he said he hoped the reduction was the first in a series of three decreases.
Yesterday's cut sees the ECB's key rate fall by 0.25pc to 1.25pc.
Each 0.25pc fall in interest rates sees repayments fall by €15 a month for every €100,000 borrowed.
And last night Permanent TSB became the first lender to say it would pass on the rate decrease to its variable rate customers. The lender has been the most aggressive in pushing up variable rates -- with some now as high as 6pc. Its standard variable rate will now come down to 5.44pc.
And most other lenders have pushed through a series of savage rises in variable rates over the last two years, even when eurozone rates have not moved.
This means that some of those on variables are paying up to €250 a month more in repayments than those on trackers, for the same-sized mortgages.
The Central Bank said last night: "Where lenders have previously increased rates to follow ECB actions, the Central Bank would expect all lenders to similarly pass through any ECB rate reductions to all borrowers."
Most lenders contacted yesterday said no decisions had been taken on whether or not to pass on the latest cuts to the 200,000 homeowners with variable rate mortgages.
The Irish Banking Federation insisted that Irish mortgage rates were low compared with those in the rest of the EU. But it admitted that very competitive tracker rates skewed the figures.
Last month lenders clashed with deputy Central Bank governor and regulator Matthew Elderfield when he told them to stop hiking variable rates and to pass on any ECB rate reduction to these mortgage holders.
Bankers insisted they should be free to set their own mortgage rates.
Ernst & Young economist Marie Diron said the door was now open to more rate cuts.
"We think that the ECB will need to cut interest rates again in December," she said.
Both Goodbody Stockbrokers economist Dermot O'Leary and Ulster Bank's Simon Barry also said it was likely a second rate cut could come next month.
Economists have pencilled in a third reduction early next year, as the ECB battles to stave off what its new president Mario Draghi said was the possibility of a "mild recession" in the eurozone.
The Italian yesterday said the ECB governing council had been "unanimous" in its decision. "We looked at the (economic) forecasts. . . the weakening of the business cycle," he said. "We felt that there would be no threat to price stability were we to lower rates by 0.25pc."
Mr Draghi yesterday said it was "very likely" that the ECB's growth forecasts for 2012 would have to be pared back in light of recent developments.
Mr Draghi also dismissed suggestions that Greek's debt deal might make the ECB more "open" to allowing Ireland to renegotiate some of its sovereign debt or the debts of failed banks.