ALL eyes will be on the Dublin money market this morning to see if the key one month rate will hold above 5.5 per cent, the level which indicates an increase in bank and building society rates.
The Central Bank has so far not made its intentions clear, but may be worried that the rapid rise in credit borrowings could fuel a sudden increase in inflation. If it does not want to see an immediate rise in rates, the Bank could inject funds into the market to move the one month rate just below the 5.5 per cent barrier.
The bank may also be worried that the property market, which has continued to strengthen, could be in danger of overheating. A rise in mortgage rates might make house purchasers pause for breath.
Market analysts are still divided on whether the Central Bank wants higher retail interest rates. Mr Jim Power, chief economist at Bank of Ireland Treasury, believes the Central Bank could lead the way by increasing its short term facility rate - the rate at which it lends to the commercial banks.
Other analysts believe the Central Bank would be loathe to increase its short term facility rate at a time when German interest rates could still be heading lower.
Another problem for the Central Bank is that higher interest rates could further strengthen the pound against sterling. Exporters are already complaining that the situation is becoming intolerable with the pound at its current levels of 104p sterling.
