Irish Permanent to cut rates

Irish Permanent, the state's largest mortgage lender, is expected to cut its lending and deposit rates later today, kicking off the next round of interest rate reductions.

The move follows the decision of the European Central Bank (ECB) to cut its key repo rate by a larger-than-expected half percentage point although the Irish lending institutions are not generally expected to pass the full half-point cut onto savers and borrowers.

Cuts of up to 0.40 of a percentage point have been mooted although some in the industry believe that even this figure may be too high and reductions of around 0.3 are more likely. This would result in an estimated saving of £15.00 (#19) per month on a £50,000 mortgage.

An Irish Permanent spokeswoman said it was looking at the impact on savers and borrowers last night and expected to make an announcement sometime today. She could not say how much lending rates would be reduced by other than to note the company would be "sympathetic" to depositors who have seen their rates of return seriously eroded in recent months.

However, TSB's head of marketing Mr Sean Curtis said he could not see the full half-point being passed onto customers because of the dilemma over deposit rates. The bank will be considering its rates next week.

Mr Martin Walsh, head of lending at EBS, also expressed concern about the impact of further cuts on depositors, particularly elderly people who are often reliant on savings to bolster their income.

"During the currency crisis seven years ago our primary concern was the plight of borrowers with very high mortgage rates. Time has moved on and we would now have to have greater concern for savers."

He also said the drop in rates would further stimulate the housing market, making it necessary to put in place measures to increase the supply of housing.

Meanwhile, Bank of Ireland economist Mr Jim Power said Ireland needed a half-point interest rate reduction "like a hole in the head".

Mr Power said the cut was designed to counter the economic slowdown in the larger countries of the euro zone, including Germany but was likely to further fuel house and wage price inflation in Ireland.