NATIONAL Irish Bank's move to cut interest rates on all its accounts by a half percentage point is likely to be followed by other lenders within weeks, analysts said.
However, the timing of the move is difficult to call as many institutions are still waiting for the Bundesbank to make the next move.
NIB announced it will cut its variable mortgage rate by 0.5 of a percentage point from the close of business on Monday February 12th. Borrowers will now pay 6.7 per cent, down from 7.2 per cent.
Lenders say privately that the decision whether to follow NIB is "too close to call". One banker said the relative size of NIB in the market meant there was no immediate pressure to cut.
"The problem is our savers cannot afford to, take another cut in interest payments," he said. "But on the other hand we cannot afford to lose our competitive position in the mortgage market."
The consensus appears to be that if any of the big banks or building societies makes a move next week, the others will be forced to follow.
"NIB have stolen a march on their competitors and it's a very competitive market, I would not be all surprised to see the others following its lead," said Mr Dermot O'Brien, economist at NCB Stockbrokers.
The news earlier this week that German unemployment had breached four million for the first time since 1945 has added pressure to the bank to move quickly.
"If they don't cut then it'll be two weeks later," Dr Dan McLaughlin, chief economist at Riada predicted.
The Bundesbank's key discount rate is at 3 per cent and the Lombard emergency financing rate remains at 5 per cent.
But the key matter is timing O'Brien said that although the Unemployment numbers are probably the German central bank's "overriding consideration" it always bases interest-rate moves on changes in the money supply.
Although `such a high figure now seems unlikely, most analysts still expect it to be very strong. That would put dampeners on the Bundesbank's plans to cut rates further.
"The timing is problematic for the Germans," he noted. Some analysts are now expecting it to wait for the February money supply data. That would put back an interest rate cut to March.
One thing all analysts agree on is that it is practically impossible to predict anything the Bundesbank may do. It loves to surprise the markets and often excels at doing just that.
Dr McLaughlin added that the Irish Central Bank has been tightening liquidity a little during the week. A key sign of that is the small upward move in one-month money to just above 5 per cent.
But he added that "our rates are 75 per cent above Germany's. If growth slows a little, there is to narrow the difference further. Any rate cuts should not be seen as the last we are going to see this year."
Nevertheless, the timing of the move caused some surprise. Irish one-month rates traded at around 5.13 per cent on Friday. Dr McLaughlin said it was "somewhat surprising" that NIB moved early.
But, he added, he expects the wholesale rates to trade below 5 cent again next week.
Wholesale rates at or below 5 cent are seen as a necessary condition for any further interest-rate cuts.
National Irish Bank has reduced its variable mortgage rate to 6.7 per cent (APR 6.9 per cent) from 7.2 per cent. NIB's overdraft rate for personal customers now stands at 10.5 per cent. The bank claims this is among the most competitive currency on the market.
