THE forensic evidence of recent days shows the Central Bank is guilty of engineering the forthcoming rise in interest rates. Its fingerprints are everywhere. The Bank may not own up to it, of course, perhaps even pleading that it was its favourite fall guy - market trends - which forced the rise. But no one in the markets is in any doubt that Dame Street is behind the rise.

If the Central Bank wanted to avert a rate rise, it could easily do so. Its actions in the market, however, show that it wants to see borrowers pay more. It has made no attempt to provide liquidity to the market to take the key one month rate below 5.5 per cent, the level which indicates higher retail interest rates. A number of market sources have confirmed that the rate at which the Bank provides short term funds to the market - the repurchase or "repo" rate has risen in tandem with money market rates, a clear signal to dealers in the wholesale market that the Bank is content with the higher market rates.

It is only a matter of time before mortgage holders and other borrowers face higher repayments. First to be affected may well be new borrowers as the banks and building societies reassess some of the special offers" designed to entice new clients. Variable rates, which affect the bulk of borrowers, are also likely to rise soon. The long period of falling interest rates since the end of the currency crisis in early 1993 has finally come to an end.

The general view in the market is that the Bank wants to see higher interest rates to control the growth in borrowing and particularly to cool the mortgage market. This is no doubt part of its motivation. However, there are no signs yet that higher borrowing is feeding through to inflationary pressures. Historically there is no strong link between strong credit growth and inflation. Higher repayments of £12 to £15 a month might not deter many borrowers, but the Bank may hope that showing borrowers that rates can rise as well as fall may have some impact.

What might be the Bank's other motivations? Jim O'Leary, economist with Davy stockbrokers, argues that currency considerations have also played a part. He believes that the bank wanted to take advantage of a period of sterling weakness to push the pound above 104p, partly to weaken its "sterling clone" tag on the markets and partly to bear down on inflation.

The bank may be trying to take out a little Maastricht insurance". Next year's inflation performance is the one that will count towards qualification for the single currency and, despite recent figures showing Irish inflation running at 1.4 per cent, the Bank will want to make sure that price pressures do not surface moving into next year.

There is strong evidence that the pound/sterling exchange rate has a significant impact on inflation, as it determines the cost of much of the imports which come into the State. The bank will hope that a higher pound exchange rate will put the squeeze on inflation moving into 1997.

There is no reason to expect another early increase in interest rate beyond the one over. Which the financial institutions are now mulling. However, further modest rises might be expected moving into next year. Internationally, interest rates are turning upwards, with the Bank of England calling for higher British rates, speculation over a rise in US rates and the likelihood that there will be at most one more easing in German rates before they too start to rise in tandem with a recovering economy.

There is also uncertainty about how the markets will react to the Maastricht factor next year as the European economies strive to qualify for the single currency. Nervousness in the French market this week over rumours later strongly denied - that France and Germany were hatching a pact to delay EMU may be a foretaste of things to come.

Investors have poured million into so called "convergence plays", bets that interest rates across Europe will converge as the move to EMU progresses. Any further doubts about the move to the single currency will mean this money will move and markets will be disturbed. It may not add up to a recipe for soaring borrowing costs, but borrowers should plan for higher repayments over the next year or so.