THE Bundesbank has enhanced its reputation as the bank that likes to say "nein". Perhaps it was predictable, as there is nothing more certain when most market analysts are expecting a cut than that the German central bank will sit on its hands.

Its refusal to cut rates yesterday may bring forward an increase in Irish interest rates, with a risk now that the Central Bank will move rates higher over the summer. Lower interest rates in Germany would have helped Europe's politicians prepare their economies for monetary union, a task which will be difficult for many, unless the promised recovery in continental economies materialises.

The Bundesbank's decision to keep its monetary powder dry for the moment was probably based on a number of factors. One was a desire not to been seen to be pushed into anything by the financial markets. The bank's council will also have noted some recent signs of recovery in the German economy. Further, the Bundesbank may anticipate an increase in US interest rates before too long, which could help Germany by pushing up the dollar and weakening the deutschmark.

Despite these considerations, most analysts had anticipated a small reduction in the German central bank's key money market rate, the securities repurchase or "repo" rate. However, as happened so often in the past, the Bundesbank, disappointed. The question now for the markets is whether German interest rates are at their floor, or whether the next move will be upwards?

Many still expect a further easing in the repo rate when the council reconvenes in September after the summer break. But this is by no means certain and much will depend on German indicators published in the meantime and on what happens on the currency markets.

Whatever happens, an increase in German rates is still some way off, and will probably not arrive until early next year.

But the same cannot be said for Irish borrowing costs. The Central Bank is closely monitoring inflationary pressures and particularly what is happening in the housing market.

The last figures showed lending from banks and building societies in May running 12.5 per cent ahead of the same time last year, up from 11.7 per cent the previous month. If the figure rise's any more - the June figures are due next Thursday - alarm bells will start ringing in Dame Street and an increase in rates before the property market cranks up again for the autumn might be seen as appropriate.

One way or another, it is now likely that Irish borrowers will be paying more before the end of the year. The Central Bank will not be in the mood to take any risks because it is inflation performance in 1997 which will count towards qualification for the single currency.

The single currency will also be on the Bundesbank's mind, although it has always made clear that the German economy is its primary concern. If it chooses not to ease interest rates any further, then the German central bank will make it all the more difficult for the rest of Europe to qualify for the single currency club.

Stronger economic growth is needed to make it easier for France, Germany and others to meet the budgetary rules set down in the treaty. The budget cuts needed to meet the criteria will be both more painful and more difficult to achieve if growth is slow.

The second half of this year will now be a key period as a dry run is done for the selection process and member states make their final preparations for the key 1997, qualification year.

Some would argue, of course, that the Bundesbank would like nothing better than to see the whole project fall flat. However, this is probably too simple a view. The German central bank will be well aware of the commitment of the German government to the whole project. And its main focus so far has been on ensuring that the rules for qualification are as tightly drawn as possible.

It may yet deliver a cut in the autumn. But, in the meantime, its decision not to do so is likely to maintain a firm deutschmark and weak sterling - not an ideal combination for Ireland.