Bank of Ireland has forecast a quarter percentage point rise in interest rates some time in the first three months of next year.
In its the latest global markets bulletin, the bank's chief economist Dan McLaughlin said that although rates had remained unchanged for 28 months at 2 per cent the ECB's rhetoric had changed of late and was now pointing toward a rate hike.
Dr McLaughlin said: "Two new developments account for the change in tone from Frankfurt alongside the continuation of an upward trend in mortgage lending which was now growing at an annual rate of 10.5 per cent.
He said: "Monetary growth has also accelerated strongly, exceeding 8 per cent in August, which is worrisome for some in the Bank's Governing Council, as they fear that excess liquidity will eventually spill over into higher inflation."
The headline inflation rate in September rose to 2.65 per cent on the back of surging oil prices - the highest point since early 2002.
Dr McLaughlin said: "In the absence of a short fall in energy costs inflation may now continue to exceed the 2 per cent target for months to come".
He added that although the ECB can do nothing about rising energy prices, it is concerned about secondary effects such as wages and other cost increases as a result of the spike in oil prices.
"This move to a tightening bias could also be supported by recent signs of stronger than expected economic growth in the eurozone which combined with the marked acceleration in headline inflation and buoyant monetary growth, could provide further ammunition for the hawks on the Governing Council."
"The market has already adjusted its expectations on the timing of a rate rise, with a quarter point move now seen in the first three months of 2006, a marked change from the situation over the summer, when tightening was not envisaged until 2007," he said.