Ecb reduces rates by a further .5%

06 November 2008
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Ecb rate reduction

As expected the ECB base rate was reduced today to 3.25%.This is good news for borrowers and especially mortgage holders on tracker rates.This reduction if fully passed on would save approx €25 per month per €100,000 borrowed.

Unfortunately lenders are no longer offering tracker mortgages to new borrowers .

It remains to be seen how much of this rate reduction lenders will pass on.There is now quite a divergence between lenders variable rates at the moment with Aib and Bank Of Scotland leading the way in passing on rates to customers.Hopefully others will follow suit.

This reduction was expected and was made in the light of reduced inflationary risks brought about by reducing commodity prices and a rapidly slowing European Economy.

The hope is that the reduction will act as a stimulus to business and The European Central Bank clearly identified the important role of banks and governments in getting their economies back moving again.

In practical terms what does this mean for Ireland.?We need lenders to live with business through difficult times and yet on the other hand lenders need to ensure they minimise bad debts in order to maintain their capital.It is a difficult balancing act. The government's tax revenue position will almost certainly come under pressure and this will create its own problems requiring severe cutbacks over the coming months.

If lenders need to strengthen their capital bases they should do so as quickly as possible so that they are in a position to contribute and compete in bringing life back into the economy.

Cutbacks both by individuals and householders are inevitable.It is important that sellers of assets, whether they be individuals selling their home,property developers or other asset sellers such as car dealers quickly bring their sale prices to realistic prices .The sooner this happens the better for the economy .

From a business perspective we certainly believe that the failure to ratify Lisbon is not helping us and at times like this we need as many friends as possible.

All in all a very difficult year ahead despite falling interest rates!