The major banks and building societies will join the latest round of interest rates cuts this week, dropping rates by up to 0.75 of a percentage point for savers and borrowers. National Irish Bank and Irish Permanent have already reduced their mortgage rates for customers, passing on the reduction in key money market rates by the Central Bank on Friday.

National Irish Bank moved before the Central Bank cut, reducing its rate by 0.5 of a percentage point, while Irish Permanent went immediately after the Central Bank, announcing a decline of 0.75 of a percentage point in its variable mortgage rate to 6.75 per cent.

For mortgage holders, the 0.75 of a percentage point rate reduction at Irish Permanent will yield substantial monthly savings on mortgage repayments. Borrowers with a £50,000 mortgage will save £22.61 per month, while those with a mortgage of £80,000 will be £36.00 a month better off. However, the interest rate cuts are further bad news for savers, reducing the rate of return on their savings to historically low levels.

On Friday, the Central Bank announced a cut of 1.25 percentage points in its repurchase rate, the rate at which it supplied money to the banks, in the first of a series of interest rate reductions in preparation for Ireland's membership of the single currency next year.

The banks and building societies will all reduce rates as a result but are likely to continue to hold off in passing on the full 1.25 percentage point drop in money market rates in a bid to protect its depositors and maintain profit margins.

All of the remaining financial institutions are closely monitoring their interest rates but will be quick to follow in reducing their rates to protect their market share in a highly competitive sector. With further rate cuts in the pipeline, the institutions will be keen to pass on the reductions in one or two steps, rather than pass on series of small rate reductions, which are expensive for them to implement.

The Central bank has been under increasing pressure to bring down Irish interest rates closer to European rates as part of its preparations for the convergence process ahead of the introduction of the euro. Irish rates still have to drop by 1.6 percentage points to get to these levels by year end.

Most analysts believe the Central Bank will make one or, at most, two further moves to lower interest rates to the required levels. The next rate reduction could come next month, particularly if the inflation figures confirm a continuing downward trend in prices. Falling interest rates across the world means that the euro zone is likely to start its life next January at the rates now prevailing in France and Germany, where short-term wholesale market rates stand at 3.3 per cent. This means the Central Bank will have to reduce its rates from 4.9 per cent now to 3.3 per cent.

Borrowers are unlikely to reap the full benefits of a further 1.6 per cent fall in money market rates, but mortgage holders should enjoy an overall reductions of around 2 percentage points as a result of the realignment of Irish interest rates in the run up to the introduction of the euro.

This will mean total savings of close to £60 a month on a £50,000 mortgage. It should also herald a much wider range of longer-term fixed rate mortgages, for between 10 and 20 years.

On the downside, savers are looking at even worse rates of interest on their funds for the foreseeable future.