As interest rates rise, we are becoming spectators to a monetary morality play, writes Marc Coleman, Economics Editor

With another quarter-point rise in interest rates announced yesterday, and a similar rise likely in June, we are becoming spectators to a monetary morality play.

Yesterday's quarter-point rise will add €35 per month to the cost of an average €250,000 mortgage. If rates rise by a further quarter point in June, as yesterday's comments from European Central Bank president Jean Claude Trichet suggest they might, this will double to €70 per month. For married first-time house-buyers that just about blows away the €800 benefit of the mortgage interest relief increase in the last budget.

And that's just for an average mortgage. Many more recent entrants into the housing market are saddled with mortgages of up to €500,000 or higher.

Between yesterday and early June, their annual cost of living will have risen by up to €2,000 a year, wiping out not only the extra mortgage interest relief but also eating into the value of income tax measures.

For average voters, the impact of the rate rises are still modest compared to the largesse of the budget. The trouble for the Government is that they come much closer to the election date.

The memory of goodies doled out several months ago can be erased by bad news now, however less significant the bad news is.

And this is where the morality play aspect lies.

If a second rate rise is coming, it will have a particularly Irish flavour. The signs of such a rise coming were liberally sprinkled all over Mr Trichet's comments at yesterday's post-council meeting press conference.

"Monetary continues to be accommodative" roughly translates as "we think interest rates are still too low".

References to the outlook for price developments remaining "subject to upside risks" and to "stronger than expected wage developments" are taken as signalling that a rate rise is coming soon, but not as early as April. This is because one vital word was omitted from Mr Trichet's comments yesterday; the word "vigilance".

When inserted several times into Mr Trichet's scripted speech to the press after a policy meeting of the governing council, this always signals that a rate rise is coming at the following meeting.

But two factors make the next rise to come interesting from an Irish point of view.

Firstly the ECB has reverted back to its normal rhythm of rate rises every three months. If rates rise, they will rise in June.

Secondly, and by complete coincidence, the last policy meeting of the governing council is scheduled to take place in the first week of May in - guess where? - Dublin.

The Government must call an election by the first week of July. But it is unlikely to call one before the end of April, meaning that the ECB's May meeting is likely to dump a dose of bad news on the Government's doorstep when least needed.

The morality play aspect of all this is clear to anyone who deciphers ECB press statements.

It has continually stressed its concern about rapid lending growth and house-price inflation in "certain regions" of the euro zone. Too polite to mention countries by name, it is referring to Ireland, Spain and the Netherlands.

In May it will find itself delivering a policy broadside to a country that appears to have strayed most from the path of monetary morality