Market attention shifts from  Brussels to Frankfurt this week as economists and investors are counting on the European Central Bank to cut interest rates to a record low to help sustain last week’s strong rally.

Most market watchers are expecting ECB president Mario Draghi to announce a quarter point cut in base rates to 0.75 per cent after the governing council meets on Thursday to help boost lending and revive economic activity in the eurozone.

Officials will lower their benchmark interest rate by 25 basis points to a record low 0.75 per cent, according to the median forecast in a Bloomberg survey of 57 economists. Five predict a cut of 50 basis points and 12 foresee no change.

The move would lead to falls in market rates and make it cheaper for financial institutions, companies and individuals to borrow money.

ECB officials hinted at a rate cut for July after last month’s meeting. Since then economic indicators have shown continued weakness in the eurozone, while inflation has remained steady at 2.4 per cent. Banks have been reluctant to lend into the economy too, preferring instead to buy government bonds or leave their money on deposit with the ECB.

Citigroup’s European economics team is predicting a small cut in the deposit rate, to encourage banks to take their money out instead, according to a report published last Friday.

A rate cut would be good news for the majority of Irish mortgage borrowers, as those on trackers would automatically see the reduction passed on in their monthly payments. But lower rates will also squeeze banks’ margins, making it harder for them to recover their profitability – unless they make new loans.

Lower interest rates would also encourage investors to keep buying stocks in the hunt for yield and could help markets sustain June’s recovery further into the summer. Global markets rallied hard last Friday after European leaders agreed on steps towards a banking union.