BELEAGUERED Irish homeowners with outstanding mortgages totalling €147.5 billion could get a €740 million cut in annual interest payments if the banks pass on an expected 0.5% interest rate cut on Thursday by the European Central Bank.


AIB Global Treasury chief economist John Beggs expects the European Central Bank (ECB) to deliver a cut of at least 0.5% and possibly 0.75%. This could result in a huge annual fall in mortgage repayments by Irish mortgage holders who collectively owe close to €147.5bn on their mortgages.

Irish financial institutions have passed on the bulk of recent ECB interest rate cuts to mortgage holders and if the ECB cuts rates by 0.5% Irish consumers will have an extra €740m to spend or save next year, providing a massive boost to the economy.

Any cut in rates will also ease pressure on Government finances as Finance Minister Brian Lenihan struggles to find funding to serve the national debt which will hit close to €60bn over the next 18 months.

In a Reuters poll taken before the biggest drop in inflation since the eurozone was created 10 years ago, to 2.1% year on year, most economists had expected a 50 basis point cut to 2.75%. But even then a quarter of the forecasters see a deeper cut of 0.75% to 1%.

The ECB has already cut rates twice by 0.5%, in October and November, as the eurozone sank into recession in the wake of the worst global financial crisis since the 1930s.

Interest rates in the eurozone are still the highest among the Group of Seven nations, and investors point to slowing inflation and rising unemployment as evidence of the need for deeper rate cuts.

- IRISH EXAMINER, Conor Keane: Financial Editor