The European Central Bank cut its key interest rates in a surprise move today, with its new president saying the decision was mainly due to fears about slower economic growth.
European stock markets, severely depressed by the Greek and euro zone debt crisis, rallied strongly on the news.
The ECB's governing council voted to lower the rate for its main refinancing operations by a quarter of a percentage point to 1.25% at its monthly meeting in Frankfurt, the first to be chaired by new ECB chief Mario Draghi of Italy. He said the decision to cut its key interest rates was "unanimous".
Mr Draghi told his first press conference in Frankfurt that while inflation had remained above the ECB target of around 2%, it was expected to decline below target during 2012.
He said tensions in financial markets caused by the euro zone debt crisis, as well as weaker global growth, were likely to dampen growth in the euro zone for the rest of this year and beyond.
Mr Draghi said growth forecasts for 2012 were likely to be lowered, dampening price pressures, and today's decision on interest rates took this into account.
The ECB chief said there was "high uncertainty" and "'intensified downside risks" for the euro zone economy.
On Greece, the new ECB chief said that the bank is closely monitoring the situation. ''We are absolutely confident that if the measures that have been stated in the programme are going to be implemented, " he added.
The move came as surprise as ECB watchers had not expected Draghi to announce any cut in interest rates just yet, only two days after taking over from Jean-Claude Trichet of France.
Finance Minister Michael Noonan said banks should pass the rate cut on to variable rate customers. He added that the cut had surprised him, but he hoped it would the first of three by early next year.
PTSB will cut variable rate in response
Permanent TSB has said it will pass the cut on in full to both its variable and tracker mortgage customers. It said the cuts would be effective from November 21, and would bring its standard variable rate to 5.44%.
KBC also said it would pass the cut on to its variable rate customers. "The bank is reducing its rates to customers notwithstanding the fact that the cost of funds on the retail deposit market and the wholesale market does not fully reflect the ECB reduction," it said. From December 1, KBC's standard variable rate will be 4.25%.
Bank of Ireland has yet to take a decision on whether to pass on the cut on to its variable mortgage customers.
AIB said its products and services, including mortgage rates, were under constant review, pointing out that it had not passed on the last two ECB rates rises to variable rate customers.
Ulster Bank says it has no plans to pass on the ECB rate cut to its variable rate mortgage customers, though a spokeswoman says all its mortgage products are under continual review.
EBS also said no final decision has been made about the impact, "if any", of the change on its standard variable mortgage rates.
Broker group PIBA said the rate cut was welcome, but called for a more aggressive cut, saying rates should come down to 0.5%, as in the UK.
PIBA said someone with a 25-year €200,000 tracker mortgage should see monthly repayments drop by €24.47 a month.
The Irish Banking Federation welcomed the rate cut, but said mortgage interest rates were a matter for individual institutions "in a competitive environment".
IMF welcomes today's shock euro zone rate cut
The International Monetary Fund welcomed today's surprise interest rate cut by the European Central Bank in the face of growing market turmoil over the euro zone debt crisis.
"We fully support the interest rate reduction announced this morning, which reflects the decreasing inflationary pressures and intensified negative outlook for the euro zone," IMF spokesman David Hawley said at a regularly scheduled news conference.
The Washington-based IMF has supported such an ECB rate cut in recent months, warning that the risk of increasing inflationary pressures was much less than the risk of a slowdown in economic growth.
