Borrowers will see the cost of mortgages and other loans fall next week, but lending institutions are unlikely to pass on the full benefit of the half of a percentage point cut in interest rates announced by the European Central Bank (ECB).
The Republic's leading banks kept their powder dry in the wake of yesterday's ECB announcement that it would cut its key wholesale rate to 2 per cent.
The ECB rate dictates the rates at which institutions charge interest to retail customers. But these were left unchanged yesterday, except for a handful of specialised products that "track" ECB rates.
A spokesman for the State's largest retail bank, AIB, said a decision would not be made for "another two or three days". Its main competitor, Bank of Ireland, said it would review its rates in light of the ECB announcement. High-profile economists working for both banks have been predicting the cut for several weeks.
The State's largest home loan lender, Permanent TSB (the retail banking division of Irish Life and Permanent) also said it would review the situation. The other institutions and building societies all echoed these statements.
If the full value of the cut is passed on to those with domestic mortgages, savings would work out at around €30 a month for a 20-year €100,000 home loan, or €40 for €150,000 borrowed over the same period. But industry sources last night said it was unlikely that borrowers would get the full benefit of the rate cut. The banks' spokesmen warned that margins were already under pressure.
They argued that savers were the "other side of the equation". Deposit holders are now getting between 0.1 per cent and 2 per cent return on their savings. AIB's spokesman said that passing the full impact of the cut would effectively leave some savers with a "negative return". However, a number of groups criticised the institutions for not reacting to the cut.
Fine Gael's spokesman on enterprise, trade and employment, Mr Phil Hogan, said the banks were saving €101,000 a day for every day that the full rate was not passed on. He based his calculations on Department of the Environment statistics.
"Young home-owners are already under enough pressure with the ever-escalating property prices in Ireland," he said last night. "The least they could expect is that rate cuts like today's from the ECB would be passed on in full, and passed on immediately."
The Irish Small and Medium-sized Enterprises association (ISME) said that while banks were making record profits, small businesses were struggling. "In that context, ISME calls on the associated banks to reconsider their approach to interest rate policy and pass on the full benefit of this 0.5 per cent reduction in the ECB rate."
