Bank representatives have warned against pressure on them to cut interest rates after Taoiseach Simon Harris sought a meeting to discuss mortgage interest rates and other consumer issues.
Mr Harris’s request came ahead of yesterday’s ECB rate cut which is expected to be followed by further reductions later this year, following a long period of rate increases to tackle inflation.
In a letter to the heads of the State’s main banks last week, Mr Harris said: “I expect interest rates to fall over the coming months. While I understand that interest rates are a commercial matter for your bank, just as mortgage holders on variable rates saw their monthly rates increase, I would like assurances from you that their monthly repayments will decline just as quickly.”
Speaking to reporters earlier this week in anticipation of the rate cut, Mr Harris said it was “important that banks pass that [rate cuts] on as quickly as possible”.
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But the Banking and Payments Federation Ireland, an industry group, responded to the rate cut by pointing out that “interest rates and pricing of lending is a commercial matter for each bank or non-bank lender that operates in the marketplace”.
“In addition,” the group’s chief executive Brian Hayes, the former Fine Gael minister of state, said, “lenders are legally prohibited – under strict competition rules – from signalling any future pricing change either publicly or privately”.
Sources pointed out that any statement suggesting that rate cuts would automatically be passed on would be in breach of rules.
The Minister for Finance Michael McGrath was cautious on the subject, telling RTÉ that “the pricing of mortgages is a commercial decision for the banks”.
Of course, they should be treating people fairly and where interest rates went up in line with the ECB changes, then they should fall as ECB interest rates come down
— Michael McGrath
“I think what is important is that they treat customers fairly and consistently,” he said
“Of course, they should be treating people fairly and where interest rates went up in line with the ECB changes, then they should fall as ECB interest rates come down. I think that is the key point.”
Some Government officials were critical of the Taoiseach’s intervention: “It’s like something an opposition finance spokesperson would come out with,” said one, who spoke on condition of anonymity.
Close to 200,000 homeowners are set to benefit from the ECB rate cut of 0.25 percentage points immediately with banks set to pass it on to tracker mortgage holders from the middle of this month.
The reduction, which had been widely flagged, will result in monthly repayments on every €100,000 of tracker mortgage debt falling by around €13 so that a customer with €200,000 remaining over 10 or 15 years will save about €25 monthly.
Industry analysts have warned the Frankfurt-based bank is likely to take a cautious approach to future rate cuts, a view borne out by ECB president Christine Lagarde in the wake of the move.
[ ECB rate cut: What it means for you and what might come nextOpens in new window ]
“We are determined to ensure that inflation returns to our 2 per cent medium-term target in a timely manner,” she said. “We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.”
Darragh Cassidy of price comparison and switching website bonkers.ie noted that as the cut in interest rates had been so well signalled over recent months, several mortgage lenders had already cut their fixed rate mortgage products in anticipation.
“Those on variable rates may have to wait a bit longer to see anything positive though. The main banks only passed on a fraction of the ECB rate hikes to their variable-rate customers in the first place,” he said.
“Mind you, variable rates in Ireland were very high to begin with. So, there may not be much movement from the banks here, at least initially.”
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