AN INCREASE in interest rates is looking increasing likely, unless the Central Bank sends a clear signal to the market next week that it does not want an early rise in borrowing costs.
The bank chose not to signal a push towards lower rates on the wholesale market yesterday, thus sending the clearest indication yet that it wants to see a rise in bank and building society interest rates.
The bank is worried the rapid growth in lending could lead to the booming property market overheating, thus fuelling a rise in inflation. Figures published earlier this week showed rapid growth in borrowing continued into June, running 13.3 per cent ahead of last year.
Trading next week in the money market will be crucial. It is still open to the bank to put money into the market to push the key one month rate below 5.5 per cent, the level which could trigger an increase in interest rates. Yesterday the one month rate closed at over 5.5 per cent, having traded as high as 5.75 per cent at one stage.
Opinion is divided in the market on the likelihood of an early rate rise, although the majority of analysts believe a rise in mortgage rates is now likely sooner rather than later.
To cool the property market heading into the autumn season, the bank may be prepared to see a small rate rise. A number of analysts yesterday predicted that the bank would trigger a rate increase next week by increasing its own short term facility rate, with most anticipating a 0.25 of a percentage point rise.
However, some commentators believe the bank could still take steps to ease the pressure on the money markets, thus averting an immediate mortgage rate rises. NCB stockbrokers said in a commentary there was a lack of evidence that credit growth was affecting inflation. "We believe fears of tighter monetary policy are unfounded," said Mr Dermot O'Brien, the broker's chief economist.
Spokesmen for the main banks and building societies said yesterday they were closely monitoring conditions in the market.
"We are keeping a very close eye on the one month money rates but there doesn't seem to be any move as yet," one source said. Another said. "We're watching closely but not sure if anything will happen. Everyone is conscious of the Bank Holiday weekend. Tuesday morning will tell a lot.
Mr Philip Halpin, chief operations officer at National Irish Bank, said that it was still too early for the banks to be looking at increasing interest rates. It was possible that overseas funds moving into the Irish market could allow money market rates to case by enough to avoid an immediate rise, he said.