BORROWERS and mortgage holders can look forward to an early cut in interest rates following a further reduction in German interest rates. Savers will be paying for the move, as the small amount they earn on their deposits is likely to be cut further.
The second German cut in money market rates in as many days is being seen as a definite pointer that a cut in official German rates is on the way probably before the end of the month. The Central Bank is expected to follow Germany immediately.
But even without a move from Germany some market analysts are expecting a cut in Irish retail rates, perhaps within a week.
Market forecasters expect the building societies and banks to cut their rates to borrowers after the one month money market rate traded below 5 per cent for the first time in decades yesterday.
The rate has fallen a quarter of n percentage point in a week and is seen as a key factor behind the level of retail rates.
"The only caveat to an almost immediate rate cut is the low interest rates on deposits," said Dr Dan McLaughlin, chief economist at Riada Stockbrokers. "But competitive pressures mean the banks will be forced to cut rates."
Mr Mick Osborne, treasurer at First National Building Society, said a rate cut is on the cards. "If one institution cuts, all the others will have to follow," he said. But he warned that mortgage rates may not fall by a full half point. "A quarter point may be more likely," he said.
This would mean a cut to 7.45 per cent on a variable rate of 7.7 per cent, saving a typical borrower with a 20 year £40,000 mortgage £6 a month.
Some observers are less optimistic, but even they admit a rate cut is probably no further away than the end of the month.
"There is a strong likelihood that the Bundesbank will cut key interest rates in two weeks' time," said Mr Jim Power, chief economist at Bank of Ireland group treasury. "And we will follow whatever cut they make."
The Bundesbank kept its key discount rate at 3 per cent and the Lombard emergency financing rate at 5 per cent yesterday. But it also switched policy and reduced its key money market repurchase rate to 3.3 per cent, a rate which will apply for two weeks.
The wholesale repurchase rate was at 3.4 per cent this week and has fallen by an unusually large 0.35 of a point in the last four weeks.