THERE is no doubt that the next move in Irish interest rates will be upwards. The only question is when it will happen. The view around the Dublin market is that an increase is on the way unless the Central Bank indicates a push towards lower interest rates on the wholesale money market. As they did not bother to do so yesterday, there is a risk that bank and building society interest rates could increase before long.
Trading next week in the money market will be crucial. It is still open to the Central 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. Also, overseas investors could be attracted to put money into the market, thus allowing rates to ease.
After all, the European trend in rates remains downward and, with money market rates higher here, overseas investors may put more money into Dublin.
The balance of opinion around the market yesterday was that an early increase in interest rates to borrowers is probable. Even if the Central Bank does not increase its short term facility rate and some analysts believe it will higher rates on the money market mean that the banks and building societies could still move. If this happens, then borrowers are likely to see rates increase by between 0.25 of a percentage point and 0.5 of a point, while hard pressed depositors should also receive a little more.
The latest pressure on interest rates follows figures published on Thursday which showed that consumers and businesses were borrowing heavily from banks and building societies to pay for spending and investment.
Total borrowing in June was running 13.3 per cent ahead of the same month last year, the highest rate of increase for some time. Mortgage borrowing is running more than 15 per cent higher than last year.
The Central Bank is concerned that this high level of borrowing will fuel inflation. So far, it has to be said, there are no signs that it is doing so, with the annual rate of inflation running at a modest 2 per cent, according to the latest figures.
But some senior officials in the bank have been concerned for some time about trends in the housing market and the danger of over heating. To cool the property market heading into the autumn season, the Bank may be prepared to see a small rate rise, or at least content to have the threat of an imminent rise making borrowers think twice.
The extent to which the pressure on interest rates has been actively "engineered" by the Central Bank is a matter of some debate in the markets. Certainly the bank has been happy to see interest rates drift up wards on the money market in recent weeks, a change from its previous policy stance. The Bank itself might argue that it has just allowed the market to take its course.
Whatever the cause, the upward trend in interest rates will not be welcomed by consumers of business. For business, in particular, higher rates can only serve to support the pound's value against sterling.
The good news is that there is no reason to expect interest rates to rise sharply and even if there is an early rise, another is unlikely to follow for some time. But the one thing that is certain is that the Central Bank will err on the side of caution in the months ahead in controlling inflation.
Next year's inflation rate will count towards qualification for, single currency and no risks will be taken, even if it is at the expense of higher interest rates.
