A GENERAL round of interest rate reductions for borrowers and savers is now on the cards, after TSB Bank announced a cut in its rates. TSB is the first institution to follow National Irish Bank's recent rate cut and other banks and building societies are now likely to follow to maintain their position in a fiercely competitive market.
TSB Bank cut its main variable mortgage rate by 0.35 of a percentage point to 6.75 per cent, resulting in a £10.50 a month saving on a £50,000 loan.
It is cutting its existing term loan and overdraft rates by half a point, bringing its personal overdraft rate to 11.25 pet cent. TSB is reducing new term loan rates by between 0.5 and 0.6 of a point.
However, savers will suffer from a reduction in deposit rates, although the extent of the cuts has not been announced by TSB.
TSB's reduction comes a week after National Irish Bank led the way by reducing its interest rates. NIB's main variable mortgage rate was reduced by 0.5 of a point to 6.7 per cent and both NIB and TSB now quote an APR on mortgage rate of around 6.9 per cent.
The Minister for Finance, Mr Quinn, welcomed the TSB reduction. A statement from Mr Quinn said that, while most rates had been cut by 0.5 of a point, the Minister "noted, however, that the mortgage rate had been reduced by somewhat less".
Mr Quinn called on the remaining financial institutions to now follow and reduce their interest rates and "pass on to borrowers the benefit of lower market interest rates".
Mr Martin Walsh, head of at the EBS Building Society, said that the society expected to announce "good news for borrowers" before too long. Most other financial institutions would only say that they continue to monitor the situation. However, most concede privately that with two institutions now having reduced rates, the others have little option but to follow suit to safeguard their market share of new business.
The latest round of interest rate reductions has preceded a reduction in the Central Bank's official short term facility rate, often the trigger in the past for cuts in rates.
The Central Bank is likely to wait until the Bundesbank, the German central bank, announces a rate reduction before it moves itself.
While the Bundesbank left interest rates unchanged at Thursday's fortnightly meeting, the weakness of the German economy means analysts believe it is only a matter of time before it will announce a further rate cut.
TSB's decision to reduce its variable mortgage rate by less than a full 0.5 of a point reflects the squeeze on the profit margins of financial institutions from the continued decline in rates.
