Analysis: As financial institutions pass on the half percentage point reduction to mortgage customers, savers fear the worst, writes Siobhán Creaton, Finance Correspondent
Mortgage-holders will be delighted with the significant savings that the latest cut in interest rates will bring but savers should brace themselves for further disappointment.
The Government will have been heartened that the four financial institutions that have reacted to the European Central Bank (ECB) rate cut so far have opted to pass on the full half percentage point rate reduction to mortgage customers.
Over the past four days, senior Government Ministers, including the Taoiseach, have piled on the pressure, telling banks and building societies to bring mortgage rates down swiftly in line with the new Central Bank rates.
The newly-established Irish Financial Services Regulatory Authority (IFSRA) also took the opportunity to make its presence felt, drawing fire from the Central Bank's industry representative body, Financial Services Ireland.
IFSRA does not have any powers to force financial institutions to pass on lower interest rates and can only influence fees and charges applied to customers.
Financial institutions have never been quick off the mark when it comes to passing on savings to their customers.
Permanent TSB has claimed the half percentage point cut in its mortgage rates would cost the bank €10 million as its margins are further eroded.
The key development to watch for is the size of the rate cut that AIB can live with.
The Republic's biggest bank has aggressively chased new mortgage business in recent years, consistently offering the lowest mortgage rate.
AIB's current variable mortgage rate is 3.7 per cent, which had been about a quarter percentage point cheaper than those available at other institutions before this latest rate cut.
The bank shied away from passing on the full rate cut the last time and many of its competitors believe it won't slash its rate to 3.2 per cent this time, simply because it doesn't have to.
It will select a rate of interest that will still make it the cheapest in the market.
IFSRA said it accepted that financial institutions had to weigh up the impact of rate changes on their entire customer base. However, it has signalled that it believes they can live with a half percentage point cut in mortgage rates and still look after savers.
In many cases, it would be impossible for banks and building societies to pass on the full reduction in ECB rates to depositors as many are already receiving paltry rates of interest of as little as 0.01 per cent.
But where deposit rates can be cut they will and the same goes for rates on variable rate Special Savings Incentive Accounts.
When the brouhaha about passing on mortgage cuts has passed, let's hope that IFSRA and the Government will keep the pressure up and focus on reducing the huge profit margins applied on overdrafts, personal loans, car finance and credit cards.
From today, financial institutions can borrow money in the international money markets at a 2 per cent rate yet overdraft and credit card rates can be as high as 10-18 per cent respectively.
