Banks and building societies have begun to cut interest rates in response to a reduction by the European Central Bank (ECB), benefiting borrowers but further hitting the already low return on savings.
Bank of Ireland and IIB Homeloans were the first institutions to announce reduced interest rates following the 0.25 of a percentage point cut in the main ECB rate to 2.5 per cent.
Bank of Ireland is cutting the full 0.25 of a percentage point from the rate of interest paid to customers with Special Savings Incentive Accounts (SSIAs) that carry a variable rate of interest.
The rate of interest paid to the bank's 80,000 SSIA holders will drop from 2.75 per cent to 2.5 per cent from March 12th, reducing the return to savers under the scheme.Depositors who hold accounts that allow them to withdraw funds on demand will see the rate of interest paid fall to as little as 0.05 of a percentage point. The Republic's second-biggest bank has decided to reduce the cost to mortgage borrowers by just 0.15 of a percentage point, below the 0.25 of a percentage point cut in ECB rates.
This will bring its standard variable mortgage rate from 4.24 per cent to 4.1 per cent. More expensive overdraft and personal loans will also be cut by just 0.15 of percentage point to 11.75 per cent.
IIB Homeloans will reduce its standard variable mortgage rate by the full 0.25 of a percentage point from 4.2 per cent to 3.95 per cent. It estimates this will yield savings of about €14 a month on a €100,000 mortgage over 20 years.
ECB president Mr Wim Duisenberg explicitly left open the possibility of further cuts in the near future. Speaking after a meeting of the ECB's Governing Council in Frankfurt, Mr Duisenberg insisted that the size of the rate cut was appropriate "in the current uncertain circumstances".
He said that the prospect of war in Iraq did not influence the ECB's decision but he acknowledged that events in the Gulf could influence further interest rate changes.
Yesterday's interest rate reduction had been expected, although many analysts had anticipated that the ECB would reduce rates by 0.5 of a percentage point.