The European Central Bank has cut interest rates by 0.75 points, its biggest reduction in history. The bigger than expected move comes as euro zone inflation plummets and the euro zone economy sinks deeper into recession.
The move takes the ECB's main rate to 2.5%, its lowest in nearly two and a half years, and marks the third cut in barely two months.
It is estimated that the latest move, if passed on in full, would knock €128 off the monthly repayments on a 30-year €300,000 mortgage. AIB has already said it will be passing on the ECB cut in full to all owner-occupier variable rate mortgage customers.
Bank of Scotland (Ireland) has also passed on the ECB's 0.75% rate cut. BoSI and its retail banking arm Halifax will apply the cut to variable mortgage rates for new and existing customers from 1 January.
And this evening, Bank of Ireland confirmed that it and its subsidiary ICS Building Society will pass on the full ECB rate decrease of 0.75% across its tracker, standard variable Rate and Variable LTV-based mortgages.
Speaking after the decision, ECB chief Jean-Claude Trichet said the bank expected a recession in the euro zone next year, with the economy shrinking by between 0.5% and 1%. 'We see global economic weakness and very sluggish domestic demand persisting in the next few quarters,' he told reporters.
The ECB decision came on the same day as the Bank of England slashed its key lending rate by a full percentage point to 2%. The decision by the ECB was made in Brussels.
In an earlier move in Stockholm, the Swedish central bank lowered its key interest rate by 1.75 points to 2% to 'dampen the fall in production and employment' due to the global financial crisis.
The bank also cut its 2008 inflation forecast to 3.3% from 3.5% previously and slashed its 2009 estimate to 1.4% from 2.6%, due to lower commodity prices and weakening consumer demand. The bank's medium term inflation target is just below 2%.
Analysts suggest the bank could now slash its main lending rate to as low as 1.5% by March to boost the euro zone economy.
EU data confirmed this morning that the euro zone economy was in its first official recession since it was formed in 1999. The economy shrank by 0.2% in the third quarter after contracting by the same amount in the second quarter.
