Mortgage-holders are to benefit from further drops in their monthly repayments, with interest rates set to fall by around 0.75 of a percentage point following another big cut in Central Bank rates.

Savers, however, face a further fall in returns, which have already dropped to low levels following the Central Bank's last reduction four weeks ago. The State's biggest mortgage lender, Irish Permanent, has already responded to a 1.25 percentage point cut in the Central Bank's main interest rate yesterday.

It has reduced its variable mortgage rates by 0.75 of a percentage point to 6 per cent. The new rate will come into effect next Friday. This new cut means savings of £21.97 a month on a £50,000 mortgage, rising to £36.00 on an £80,000 mortgage. This is the second successive 0.75 of a percentage point reduction in Irish Permanent mortgage rates in less than a month. Most of the other banks and building societies have already cut rates in response to the last Central Bank cut in mid-October and are expected to move shortly to reduce their interest rates further, with lower repayments likely to take effect for most borrowers before Christmas.

By cutting its key money market interest rate by 1.25 points to 3.69 per cent, the Central Bank has brought rates here close to the German levels of 3.3 per cent, which states participating in monetary union must reach by January.

This leaves room for a further 0.4 of a percentage point drop in Central Bank rates here by the end of the year, but this is unlikely to lead to any further substantial cuts in mortgage rates.

The latest round of interest rate reductions will be further bad news for savers, with the return on money held on deposit at financial institutions set to fall to new lows.

Savers with funds in a demand deposit account are currently being offered an interest rate of up to 0.25 of a percentage point on average.

Following the latest reductions, this is set to decline even further, although most financial institutions intend to keep that rate at something above 0 per cent.

Banks and building societies are holding off in passing on the full reduction in Central Bank rates to borrowers, to keep savings rates as high as possible and protect profit margins.

The hefty reduction in the Central Bank's key money market interest rate follows rate cuts in the UK, Spain, Portugal and Sweden, already this week, leaving interest rates here now lower than in Portugal and Italy. Economists yesterday welcomed the end to the waiting game being played by the Central Bank since the last rate cut in October.

The Central Bank Governor, Mr Maurice O'Connell, has made no secret of the bank's reluctance to let interest rates fall any further given the strength of the economy.

It is committed nonetheless to bringing rates down to German levels by year end as part of Ireland's entry into monetary union. There had been much speculation as to the timing of the next downward move in interest rates and some analysts had expected the Central Bank to hold off for as long as possible in sanctioning another substantial rate cut.

The Central Bank also reduced its short-term facility by 1.25 percentage points to 4.5 per cent and the overnight deposit rate by 0.25 of a percentage point to 2.5 per cent.