Many mortgage holders can look forward to another fall in their monthly repayments after the European Central Bank cut interest rates by 25 basis points to a new record low of 1 per cent today.
The reduction will see monthly mortgage repayments on a standard €300,000 tracker mortgage over 30 years fall €39 to €1,154. The rate reduction is passed on automatically for all tracker mortgage holders.
Irish Life and Permanent, KBC Bank, Bank of Ireland and its subsidiary ICS, said this afternoon they would pass on the rate cut in full to owner occupiers with a variable rate mortgage.
However, Ulster Bank and First Active said they will not pass on the reduction to variable rate mortgage holders. The bank said its decision was "being taken in consideration of the needs of savers as well as borrowers".
Ulster Bank, First Active and KBC did not pass on the 0.50 per cent ECB rate cut in April.
A spokesman for KBC said: "While there has been a sharp fall in interest rates since October, the effective cost of interbank money hasn’t precisely mirrored the rate reductions implemented by the ECB. Our rate change decisons have to take into consideration the totality of funding costs."
The ECB kept its overnight deposit rate, which is acting as a floor for money markets, at 0.25 per cent, narrowing the gap between its policy rates instead of cutting the lowest of these to zero. The ECB also cut its marginal lending rate by 50 basis points to 1.75 per cent, from 2.25 per cent - keeping the rate corridor symmetrical. The new rates will take effect on May 13th.
ECB president Jean-Claude Trichet said the latest data and survey information suggested tentative signs economic conditions had stopped deteriorating.
"More recently there have been some positive signs ... of stabilisation albeit at low levels," Trichet said. "Overall, economic activity is going to be weak for the remainder of the year before gradually recovering in the course of 2010."
The ECB's quarter point rate cut, as expected, was coupled with steps towards quantitative easing, or the purchase of debt with new money created by the central bank.
The ECB said it could buy some €60 billion of covered bonds issued by companies in the euro zone and would lend banks unlimited funds for up to 12 months.
The European Investment Bank will also be allowed to gain access to ECB funding by taking part in the central bank's money market operations.
The euro rose broadly after the rates cut as traders cited broad demand for the single currency from speculators after it had come under selling pressure in the days leading up to the meeting.
At 1pm the euro rose 0.4 per cent against the dollar to $1.3366. However, it remained below a 1-month high of $1.3439 hit on Tuesday on EBS and the 200-week moving average technical resistance of $1.3414.
Additional reporting Reuters
