Lending in June lower than expected

Bank lending grew by 1.7 per cent in June, according to the latest figures from the Central Bank.

The figure was slightly lower than analysts had expected, given the £2 billion borrowed by consumers to purchase shares in the Telecom flotation. Most of the Telecom borrowing is temporary and is likely to result in further falls in credit demand in the July and August banking figures, analysts said.

Despite this, Ireland's annual rate of growth in bank lending is still significantly higher than that of other countries in the euro zone. Overall, private sector lending grew by 30.1 per cent in the year to June, compared to an annual growth rate of 31.1 percent in May.

The Central Bank has repeatedly pointed to the strong growth in lending as a cause for concern and these latest figures are unlikely to provide any comfort for bank officials.

"Our credit demand is exceptional by any stretch of the imagination," said Mr Alan McQuaid, an economist with Bloxham Stockbrokers. "A couple of years ago, the Irish Central Bank would have pushed up interest rates with these figures."

While the European Central Bank is unlikely to change its interest rate policy in response to the Irish figures, it has signalled that its next move on interest rates will be upwards, Mr McQuaid said.

Any rate hike, however, is unlikely before the end of 1999 or early next year, he said. "The overall picture is of extremely high demand for money which won't change until rates go up. Even then you'd wonder if it will have an impact. The rate at the start of the euro was 3 per cent and is now 2.5 per cent. If it goes up, it will probably only be to 3 per cent," he said.