Interest rates should remain unchanged for some time, the president of the European Central Bank (ECB) hinted yesterday following its decision to raise rates by a half percentage point.

The increase to 3 per cent, which was at the top end of what was anticipated, means that there is no expectation of another rise in the near future. But it also guarantees higher mortgage repayments, although it is not clear to what extent savers will benefit from improved deposit rates.

When contacted last night, all the main banks and building societies said they would be increasing rates over the coming days. EBS and First Active have both indicated they will be passing on the vast bulk of the increase. Other institutions will be reviewing their position, but the preferred option is to pass on most of the increase.

The Bank of Scotland, which only cut its rates last week, is also examining its position. Its existing rate of 3.69 per cent is the cheapest on the market.

However, even with the expected increases taken into account, mortgage holders are still better off than before Bank of Scotland's arrival into the Irish market at the end of August.

According to Mr Jim Power, chief economist at Bank of Ireland, the rate rise announced yesterday would be the last for about six months after ECB president Mr Wim Duisenberg hinted that rates would not rise again for some time. At yesterday's press conference he said if the bank had increased rates by a quarter of a percentage point it would "immediately have created the expectation that another change was imminent. We want to calm down expectations without saying when the next change may be".

According to Mr Power, the ECB is now likely to leave rates on hold for at least six months. "However, the probability is still that rates will be half or three quarters of a percentage point higher at the end of next year."

The rate rise will be welcomed by the Irish Central Bank, which yesterday released figures showing that residential mortgage lending rose by 2.2 per cent in September. The annual rate of growth was 25 per cent, up from 23.3 per cent in August.

The figures showed that credit growth rose by 2.4 per cent in September. Year-on-year growth reached 33.9 per cent in September from 31.1 per cent in August. Adjusting for technical reasons, the rate of growth was still an extremely large 30 per cent. This compares with money supply growth in the euro zone as a whole of 5.9 per cent.

The ECB's decision to raise rates failed to prop up the euro, which continued to fall on international money markets.

Dealers sold the currency despite the higher return available. The euro closed at $1.0452 from $1.0482 a day earlier and from a high earlier in the day of $1.0540. According to Mr Aziz MacMahon, economist at Ulster Bank Markets, the decline in the single currency is nothing to do with fundamentals, as the European economy is beginning to move.