THE key question after yesterday's low inflation figures is what will be the next move for Irish interest rates.

The Central Bank has been hinting in recent weeks that it would not hesitate to raise interest rates rather than risk an inflationary spurt and the resulting possibility of failing to meet the Maastricht guidelines.

Following the data, the first and most obvious point is that Ireland is now firmly back in the camp of low inflation countries. And while interpreting what the Central Bank is likely to do is never easy, it does look as if the hawks on Dame Street will now find it difficult to argue for a rate increase in the short term.

The market obviously took this on board yesterday as key money market rates fell back a little and even longer term rates look likely to ease.

The Bank may point out that the holiday price war had the biggest impact on the inflation index, but other sectors demonstrated remarkably subdued growth, with the exception of energy prices. These showed a big jump which must have been felt by motorists.

It now appears that our low inflation is based on competitive pressures across most sectors, which bodes very well for future inflation and interest rates. In fact, many brokers are already revising their inflation forecasts for this year downwards substantially.

Nevertheless, the Central Bank always has an eye on future trends, and never more so than as we move into 1997, the year in which inflation performance will count towards qualification for the single, currency. The problem for the Bank is that its hands are tied. On the one hand it is trying to align Irish rates with Germany. On the other, as with all central banks, inflation is the real bogey man.

It continually stresses that inflation is a lagging indicator and that, if recent broker forecast of 10 per cent growth last, year or even the OECD's prediction of nearly 8 per cent are correct, there is a lot of room for, inflationary pressures to build.

House prices, in particular have been worrying the authorities in recent times. These are not included in the CPI, which only includes the size of mortgages outstanding based on house building costs rather than house prices in the market. As a result, next week's data for first quarter house prices will be very closely watched.

But anecdotal evidence suggests that the market may be slowing down. The numbers of houses withdrawn at auction has been increasing in recent weeks. On top of that, there is evidence that estate agents are now actively encouraging people to go out and look at properties, something many wouldn't have done a couple of months ago. It proves to be a fundamental slowdown and the market does not pick zip dramatically after the summer holidays in September, it will be very good news for inflation and, by implication, for interest rates.

Although there is now room technically to cut interest rates, the Bank is unlikely to allow anything other than an easing in money market rates. There has been a distinct tightening in recent weeks.

Many European countries have actually cut rates while Irish policy has been significantly tightened so there is plenty of room for policy to be relaxed.

But an official move in the short term facility is extremely unlikely independently of the Bundesbank. Although the German bank had been expected to cut its repur-chase rate in the near term, higher than expected money supply figures have now put that on hold.

In its report yesterday, the OECD predicted that the German economy would begin to pick up in the second half of this year, with GDP growth of 2.6 per cent next year, relaxing pressure on the German authorities to keep interest rates low.

So the bottom line is that rates are unlikely to rise this year but a small rise next year after a German increase is still looking likely.