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Irish Banks To Pass On Interest Rate Cut To Lenders

By Phillip Morton, Investors

07 November 2008

Irelands’ largest banks have revealed that they will be cutting their benchmark interest rates by the full 50 basis points following the 0.5% interest rate cut passed by the ECB on Wednesday.

Ulster Bank, First Active, AIB, Bank of Ireland, ICS, Bank of Scotland (Ireland) and Halifax have all vowed that they will pass on the rate reduction in full to mortgage customers. Ulster Bank and its fellow Royal Bank of Scotland-owned first Active have been criticized though for only agreeing to pass on the rate at the later date of December 1. Ulster Bank has announced that it wouldn’t pass on the rates to those accounts whose repayments fell on the first of month but those with mid-month repayments would be eligible for the October ECB rate.

The move by the European Central Bank is expected to increase Irish mortgage owners’ disposable income by a total of EUR250m. A 0.5% cut would reduce the monthly repayments on a EUR300,000 tracker mortgage over 30 years by EUR90 -- and follows a similar cut last month.

The ECB cut rates by half a percentage point last month to 3.75%. Irish banks and building societies agreed to pass on the reduction but last week ICS said some existing customers will only get a 0.3 point cut and Permanent TSB are withholding the cut from all new customers.

Deputy Andrews, Convenor of the Oireachtas Committee on Finance has strongly criticised ICS Building Society and Permanent TSB for not passing on fully the recent ECB rate reduction. In a statement to the press he said: "It is imperative that the banks pass on today's cut to their customers - it is at this time, more than ever, that we need to boost economic growth in the euro-zone."

The move brings the bank's main lending rate to its lowest level in two years. Last month, the ECB, the Fed and five other central banks around the world all cut their rates on the same day to offset the effects of the global financial crisis.

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