Key euro-zone interest rates will rise to 3.5 per cent by the end of the year, a further half a percentage point higher than their present level, according to the latest Bank of Ireland Global Research Bulletin.

The bulletin, published yesterday, predicts that the European Central Bank (ECB) will raise its key interest rates by a quarter of a percentage point in October, and again in December.

"The ECB has already accelerated the pace of interest rate increases - moving again in August after just a two-month interval - and it is likely to continue on this path over the remainder of the year," Michael Crowley, senior economist with Bank of Ireland Global Markets, said yesterday. NCB chief economist Dermot O'Brien said that recent signs of weakness from the German economy would not prevent the ECB from acting.

On Monday, the closely watched ZEW index of business expectations hit a five-year low, causing fears that recovery in the euro-zone's largest economy was stalling.

"I don't think the ZEW indicator of any other single indicator is something that the ECB takes too close notice of," Mr O'Brien said yesterday.

But Mr Crowley said the expected further rate increases may bring the recent spate of rate rises to a close. "The euro area economy is unlikely to be immune from the slower growth in the US, which may stay the ECB's hand on any further increase."

A recent slowdown in rates of US producer and consumer price inflation has eased fears of inflation and lowered the chances of the Federal Reserve continuing a recent series of rate rises.