The European Central Bank (ECB) has cut its main interest rate by 10 basis points to 0.05%.

That is good news for tracker mortgage holders. But banks are expected not to absorb such losses themselves, previously having raised variable rates.

It could mean a saving of €15 per month on a €300,00 mortgage.

The euro fell 0.8% against the dollar on the back of the surprise cut. Inflation in the Eurozone is currently sitting at 0.3%.

The ECB chief executive, Mario Draghi, has announced a plan for the bank to purchase a portfolio of asset-backed securities - meaning various loans would be bundled up and the ECB would buy those loans and the money would go back to the banks.

The ECB also plans to buy up bonds in the euro area under a new covered bond purchase programme. These programmes will start in October.

"These decisions will add to the range of monetary policy measures taken over recent months, Mr Draghi said.

"In particular, they will support our forward guidance on the key ECB interest rates and reflect the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies."

"They will further enhance the functioning of the monetary policy transmission mechanism and support the provision of credit to the broad economy," he added.

But Mr Draghi commented that "additional unconventional instruments" would be used, if necessary, to address risks of a prolonged period of low inflation.

In general, the bank says the recovery is likely to continue to be dampened by high unemployment and the necessary balance sheet adjustments in the public and private sectors.

Newstalk's Business Editor Ian Guider says stagnation in the European economy is behind the surprise cut.