A slight easing of wholesale rates on the Dublin money market in recent days has caused some speculation that the Central Bank may be considering cutting interest rates earlier than expected.

Although the softening of interbank rates may be purely for technical reasons, it could also signal that the bank is preparing the ground for a rate cut. Analysts had not expected a move before the fourth quarter of the year.

"Through its actions in the next couple of days, we should get some indication as to whether the Central Bank is willing to allow money market rates continue to slide," says Mr Austin Hughes, economist at Irish Intercontinental Bank. "If the bank does not tighten liquidity conditions, expectations of a sequence of rate cuts beginning as early as next month could quickly develop."

External factors also suggest the bank may be considering a rate cut sooner than expected, economists say. Sterling's weakness and a growing feeling that British interest rates have peaked following the decision of the Bank of England's Monetary Policy Committee to leave rates unchanged point to a strengthening of the Irish pound against sterling which would augur well for inflation.

The pound closed modestly higher against sterling yesterday, at 86.98p compared to 86.67p on Wednesday.

In addition, analysts say there are growing signs that interest rates in Europe may not rise by as much as expected. Economists had expected euro interest rates at the time of the launch of the single currency to be around 4 per cent. But a loss of momentum in the German economy in the second quarter and ongoing concerns about the impact of the Asian crisis have raised question marks over this. Some analysts now believe the euro will be launched with interest rates not much above current German levels of 3.3 per cent. This means Irish rates would have further to fall to reach euro levels so the Central Bank may want to begin cutting earlier.

Credit growth figures released yesterday, showing a slight slowdown in the headline level of lending growth to 22.7 per cent in June from 24.2 per cent in May, also provide a more auspicious domestic backdrop for a rate rise.

However, some analysts are sticking to their original expectations that the bank will wait a few more months before cutting.