Borrowers are unlikely to see a rise in interest rates for several months, most economists said yesterday, but the European Central Bank (ECB) will probably increase the cost of money gradually over the year 2000 by around 1 percentage point. On the foreign exchange markets yesterday, the euro held its recent gains against the US dollar - this is likely to ease possible inflationary pressures and help delay a rate rise.
Mr Herbert Hax, an economic adviser to the German government, was quoted yesterday as predicting a "moderate" rate increase in the near future. But while such a move would be welcomed by some of the euro zone's smaller states - such as Ireland, Finland and Portugal - other economists said it was unlikely.
"Despite Irish hopes, no!" said Mr Ulrich Beckman of Deutsche Bank. "We can't rule it completely out, but I would say there is just a 25 per cent possibility of a rate hike before next year.
"The main scenario for us is a hike in the first quarter of next year; probably 25 basis points [0.25 per cent], with a chance of 50 in one go," he added.
In Dublin, economists predicted the ECB would adopt a cautious approach. At AIB, Mr Oliver Mangan said the central bank saw its main function as controlling inflation, adding that the latest figures showed this was not a problem at 1 per cent.
The recent rebound of the euro - it slid yesterday on news of the latest Russian crisis but recovered quickly - is likely to help hold off a rate rise, he added.
"It makes the ECB's job a bit easier. They were a bit worried that the fall in the euro could push up prices to some extent because imports would be more expensive," Mr Mangan said. "Also, a higher exchange rate makes European goods and services that much more uncompetitive on the world market. The ECB might take the view that they don't want to move too quickly here and move the currency even higher."
While there had been indications of increased economic activity in the euro zone of late, he added, there had not been much hard data to support this.
At Ulster Bank, Mr Eoin Fahy predicted the ECB would hold off on a rate rise until next year, and even then move slowly.
"Interest rates are going up in the euro zone including Ireland, but they are not going up terribly quickly. By the end of next year interest rates will be up significantly, probably by one percentage point higher than they are now, but it is going to be spread out over the next year, it is not going to be dramatic.
"And it is going to have very little impact on the Irish economy, because it is just too small an increase to have much of an impact," Mr Fahy said.
Some mortgage holders might not feel this increase, he added, because some banks in the Republic have not yet passed on the last rate cut to borrowers, and may be forced by competition to narrow their margins - currently the largest in the euro zone - rather than increase rates along with the ECB.
