GENERAL round of interest rate cuts is now expected after Ulster Bank announced it was cutting rates by between a quarter and a half of one percentage point. The move came in response to a surprise cut from the Bundesbank yesterday.
Other lenders have yet to announce their intentions but industry sources say institutions that have not already cut their rates are likely to move within days, particularly if the Central Bank follows its counterpart.
Mortgage holders will benefit, with Ulster announcing a quarter point cut. But savers have less cause to celebrate. Ulster cut key rates to savers by up to half a point.
Most analysts agreed the Central Bank would follow the German cuts, probably today. There was some dispute over whether it would cut the short term facility (STF) by the full half point or only by a quarter.
Mr Jim Power, chief economist at Bank of Ireland Treasury, said he expected the Central Bank to cut by a quarter but "wouldn't be surprised if it cut by the full half point".
The key one month rate was trading just below 5 per cent yesterday. This is the key rate which the banks and building societies watch when looking at rate cuts and the fall to just below 5 per cent is believed to have triggered Ulster Bank's move. National Irish Bank and TSB already cut their rates last February and the other institutions are expected to follow.
Ulster Bank cut its basic variable mortgage rate by a quarter of a point to 6.9 per cent, meaning a borrower with a £50,000 loan over 20 years will pay £390 a month, saving £8.
The bank's personal overdraft rate fell by a quarter point to 10.75 per cent. Its AA overdraft rate for small business fell by half a point to 9.5 per cent.
Analysts expected the institutions to wait for a clear signal from the Central Bank. However, Ulster Bank moved late yesterday and, as three institutions have now cut rates, the others are expected to take the same course.
Spokeswomen for AIB and Bank of Ireland said they would be watching the Central Bank closely today and were "monitoring the situation carefully".
According to Dr Dan McLaughlin, chief economist at Riada Stockbrokers everyone with a mortgage would end up paying less. "Competitive pressures mean they will all have to follow," he said. "Some will cut by a quarter, others by a half point."
Mr Mick Osborne, treasurer at First National Building Society, said all societies and banks would be looking at their options very carefully. "Market forces will determine whether we get a full round of rate cuts," he said.
He noted that there was not much room left to cut deposit rates for savers.
"A half point cut might be too bullish," he added. "I think a quarter is more likely."
The Bundesbank opted to cut by a full half point. It cut its base discount rate from 3 to 2.5 per cent and the Lombard rate from 5 to 4.5 per cent, effective today.
The half point cut, which reduced German base interest rates to their lowest level since 1987-8, surprised most analysts, who had believed the bank might wait a little longer. But a seriously depressed German economy left its central bank with little option.
By keeping the fixed "repo" rate at 3.3 per cent, the bank also implied that it was still being very cautious on inflation. This move reassured the German markets and also leaves the Bundesbank scope to, nudge down money rates in the months ahead.
