MORTGAGE holders are set to benefit from a welcome drop in their monthly repayments after the European Central Bank signalled a further 0.5pc cut in interest rates.

The cut means a homeowner with a €300,000 mortgage over 30 years would see their monthly repayments fall by around €80.

This is in addition to the four cuts over the past four months, which have seen that homeowner's monthly repayments fall by €390.

The expected cut next month will drive down interest rates to a record low of 1.5pc.

ECB President Jean Claude Trichet announced he intended to keep rates at 2pc this month at a meeting in Frankfurt yesterday.

However, he clearly signalled rates will come down in March.

"I don't exclude that we could reduce interest rates at our next decision (in March)," he said.

When asked if the cut would be 0.5pc or a more conservative 0.25pc, he added: "It would probably be more the first figure."

Mr Trichet was speaking as the Bank of England cut rates to 1pc yesterday, the lowest level since its foundation in 1694.

The US Federal Reserve has also dropped rates to almost as far as they can go.

But the ECB, so far, has been more reluctant to adopt such an aggressive approach. Mr Trichet said he wanted to avoid lowering rates to zero.

"A zero rate would not be appropriate at this stage," he said.

Mr Trichet said a range of data, especially inflation, would be considered before any decision is taken next month. He added that, looking ahead, lower commodity prices, like that of oil, indicate inflationary pressures in the euro are diminishing.

European inflation is currently at 1.1pc, down from a 1.6pc rate in December. The ECB's target rate is keeping inflation below, or close to, 2pc.

Europe is slipping into the worst recession since World War II, a report said yesterday.

Europe's services and manufacturing industries contracted for an eighth month in January and confidence fell to a record low.

As indicators become gloomier, some market watchers questioned the ECB's more conservative approach to rate cuts.

PIBA, the country's largest group of independent brokers, criticised the ECB stance.

"Only a dramatic solution will resolve the current unprecedented financial crisis," says Diarmuid Kelly, chief executive of PIBA. He added that while the Bank of England has now moved to a record low of 1pc, the ECB was well behind the curve in responding to the financial crisis.

The ECB's behaviour amounts to "fiddling while Rome burns", he added.

- IRISH INDEPENDENT, Ailish O' Hora in Frankfurt