Two Irish home loan providers yesterday reacted to mounting speculation that the European Central Bank (ECB) is set to reduce interest rates by cutting mortgage rates by a half and quarter per cent respectively.

Citing downward movement in the wholesale cost of funds, AIB announced it was lowering its fixed mortgage rates by an average of half a per cent.

The bank said it was likely to reduce its variable rate in the event of the anticipated round of interest rate cuts by the ECB.

Irish Nationwide Building Society (INBS) reduced its standard variable rate to 4.48 per cent from 4.73 per cent. The society said the decrease would remain in place, even if the ECB decided against a rate cut.

Earlier this month, EBS building society became the first Irish financial institution to second-guess the ECB when it decreased its home loan fixed-interest rates by up to three quarters of a point.

Yesterday's cut will reduce the cost of a €100,000 20-year AIB fixed-rate mortgage by €672 over two years, the bank said.

Mr Turlough Crowe, AIB sales and development manager, said homeowners were now ideally placed to "hedge their bets" and split mortgages between fixed and variable rates.

Irish Nationwide estimated savings per month on a 20-year €100,000 mortgage of €13.56. The revised rates will come into effect immediately for new borrowers and on December 1 for current borrowers.

Analysts predict the ECB's general council will follow the example of the US Federal Reserve and reduce rates by half a per cent at its December 5 meeting.

Hopes of a cut were buoyed last week when the bank predicted an easing of inflation in the medium term.

ECB chief economist, Dr Otmar Issing, said euro-zone inflation outlook had improved, and that it would closely consider the possibility of rate reductions next month.

The ECB has previously been criticised for failing to clearly communicate its intentions to financial markets.