Business lobby groups have welcomed the .5 per cent reduction in interest rates announced on Wednesday by the European Central Bank (ECB ) and have demanded that the full benefit be passed on immediately by the banks.
Central banks across the world co-ordinated emergency rate cuts in an attempt to stem market chaos but Irish business groups have now called on the relief to be passed on to Irish businesses.
"The decision by the ECB should, in theory, bring a modicum of relief to many small businesses that have bank borrowings in the form of term loans and overdrafts," ISME said in a statement.
"However, the reduction in rates will only be effective if the lending institutions pass on the benefit in full to their customers instead of their usual foot-dragging, thereby further increasing the banks’ profit margins."
The Construction Industry Federation spokesman Tom Parlon said banks need to now start lending again to customers and must immediately pass on the full benefit of these savings announced to their customers."
In the move, the European Central Bank, the Bank of England, the US Federal Reserve, Sweden's Riksbank, the Swiss National Bank, and the Bank of Canada all cut interest rates by half of one per cent.
Ireland's Central Bank said that the coordinated interest rate reductions by central banks around the world including the Eurosystem were aimed at addressing the lack of confidence globally in financial markets and institutions.
Central Bank governor John Hurley said that domestically, at a time of weakness in the Irish economy, the .50 basis point reduction in interest rates today should help to reduce business costs, ease the repayment burden on mortgage holders, encourage investment and reduce strains in the financial markets.
The ECB's benchmark rate dropped to 3.75 per cent, the Bank of England’s rate became 4.5 per cent.
At the same time, the US Federal Reserve cut its key interest rate to 1.5 per cent, reviving a rate-cutting campaign that had been halted in June out of concerns that those low rates would worsen inflation.
The move caused stock markets around the globe to rally.
China also cut its key interest rates for a second time in less than a month to stimulate slowing economic growth.
The cuts came after markets in Asia and Europe sank amid waning confidence and Russia closed its main stock market for two days.
The hope was to spur nervous consumers and businesses to spend more freely again. They took fright last month as housing, credit, and financial problems intensified, throwing world markets into chaos.
The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability, according to a joint statement by the central banks. ''Some easing of global monetary conditions is therefore warranted.''
