THE leader of largest business lobby group has written to the Central Bank warning against a rise in interest rates. However, financial institutions are predicting that an increase in rates of 0.5 of a percentage point next week is now all but inevitable.
The director general of IBEC, Mr John Dunne, has told the governor of the Central Bank, Mr Maurice O'Connell, that an increase in interest rates at this time runs a considerable risk of exacerbating the exchange rate difficulties that are being experienced by many exporters.
The detrimental affect of an interest rate rise on Irish owned firms will "soon be reflected in poor job performance with consequential affects on Government spending", he predicts.
However, the Central Bank appears prepared to let wholesale interest rates remain at the 5.65 per cent level seen for most of this week and has not intervened in the market to bring them down. If rates remain at these levels a rise in retail rates is inevitable, according to lenders.
"If they remain above 5.625 per cent it will lead to a rise in rates," predicted Mr Michael Torpey, the head of treasury at the largest home loan provider, Irish Permanent.
Mr Torpey said Irish Permanent had not adjusted any of its rates yet, but was experiencing an increase in enquiries about fixed rate mortgages. Irish Permanent's introductory discount rate for new borrowers of 5.8 per cent, which expired at the end of last week, has been replaced by a new rate of 6.75 per cent, he said.
Movements in retail interest rates are usually led by one of the four clearing banks. Both AIB and Bank of Ireland said yesterday that all their rates were unchanged and that they had not withdrawn any fixed rate of discount rate products.
However, both said they were watching the situation closely.
At least one of the banks is expected to move next week if rates remain at present levels.
"We will continue to monitor the rates next week. On the basis of the levels we are currently experiencing, it is likely there will a rise of at least 0.5 of a percentage point" predicted Mr Phillip Halpin, chief operations executive of National Irish Bank.
Ulster Bank declined to comment yesterday, other than to say that there were no chances in any rates.
Mr Michael Lennon, the ahead of funding at the EBS, said the building society was monitoring the situation day by day. The market seemed to have settled at its current levels which meant an interest raise was increasingly likely, he said.
The Central Bank would appear to want to see interest rates rise slightly due to growing concern over inflation. However, IBEC claims that "inflationary dangers are evident in the housing sector only" and that "corrective action should "be targeted".
"IBEC's data reviews do not see any signs of rising inflationary pressures on a general basis. Our survey results point to subdued manufacturing output prices and wholesale prices in the last six months remain well behaved," according to Mr Dunne.
