NATIONAL IRISH Bank (NIB) has decided not to pass on the interest rate cut announced by the European Central Bank (ECB) this week to variable-rate customers.

The quarter-point cut in interest rates will be passed on to its ECB tracker mortgage customers, as per the terms of their mortgage contracts. However, the bank's standard variable rate will remain unchanged. The bank's range of deposit rates will also not be reduced.

NIB joins Ulster Bank and First Active, both owned by Royal Bank of Scotland, and sister banks Halifax and Bank of Scotland (Ireland) in not passing on the rate cut to variable rate customers.

Separately, Germany yesterday tried to play down talk of a euro-zone "watershed" after the ECB unveiled a new proposal for direct asset purchases, despite Bundesbank opposition.

On Thursday, ECB president Jean-Claude Trichet unveiled a proposal to buy €60 billion in covered bonds, bypassing national banks, to improve liquidity in the euro zone.

Bank watchers have called the announcement - contradicting the position of Bundesbank president Axel Weber three weeks earlier - a milestone in the history of the euro zone and the end of the symbiotic relationship between the two Frankfurt-based institutions.

It was an unusual move by Mr Trichet to announce still-incomplete ECB policy, and one ECB source said it could be seen as a signal to the Bundesbank. "That might be one of the reasons, it would be a good guess," said the source. "Sometimes we are accused of being too Bundesbank-ish."

For months, the ECB has expressed concern that the crisis of confidence in financial markets has prompted financial institutions to hoard liquidity provided by the central bank.

"This plan would make sure some of the liquidity available would go directly to sound companies rather than being kept by overcautious banks and redeposited," said an ECB spokesman.

The Bundesbank insists it secured several compromises in the plan, pushed by smaller eurozone members such as Greece and Austria.

The original plan, worth €125 billion, would have allowed the bank to buy a wide range of corporate debt, from covered bonds, viewed as relatively secure, to asset-backed securities, viewed in some quarters as toxic debt.

At German insistence, the value of the purchases was halved to €60 billion - just 0.5 per cent of euro-zone GDP - and limited to covered bonds, in which Germany has 57 per cent of the market.

"We are able to live with the solution reached," said a Bundesbank spokesman.