IRISH interest rates are set to remain under upward pressure following borrowing figures published yesterday by the Central Bank. Underlying credit growth came in at 13.7 per cent in July, compared to 13.3 per cent in June and 12.3 per cent in May.

Mortgage borrowing continued to rise strongly and came in ahead of analysts' expectations.

Residential mortgage lending was up 16.1 per cent year on year in July from 13.2 per cent the previous month.

In terms of actual money borrowed, this amounted to £184 million, compared to an average of £90 million a month in 1995.

Dr Dan McLaughlin, chief economist at Riada Stockbrokers, said this was proof that the economy had "built up a head of steam" and that the housing market was taking off.

He added that he expects August's mortgage lending figures to come in at over 16 per cent. "If the Americans raise rates and the Germans don't cut again, we will be looking at another quarter point rise in retail rates," he said.

Other analysts agreed that another retail rate rise is on the way. Mr Han de Jong, chief economist at Goodbody Stockbrokers, said that while the credit growth itself would not directly add to inflation, retail sales growth of some 10 per cent year on year in volume terms as seen in June is unsustainable."

Underlying credit growth is "too high for comfort" and well above the Central Bank's implicit 7.5 per cent target for the year, according to Mr Alan McQuaid, chief economist at Bloxham Stockbrokers.

He added that the expected pick up in services inflation from increased insurance costs, higher bus and rail fares as well as increases in the TV licence and ESB charges could force the Central Bank to "engineer" another rise in retail rates before the year is out.

Mr de Jong added that the Central Bank was unlikely to push up its short term facility (STF) in the short term. "It is more likely to guide wholesale rates up a little further in an effort to persuade institutions to implement another increase in retail rates," he said.

At the same time, the adjusted rate of money supply growth fell to 12.2 per cent in July from 13.3 per cent the month before. This was partly due to very strong net government receipts. Narrow money supply - M1 - growth moved from 18 per cent to 19.3 per cent in July.

The reserves also fell from £5.05 billion to" £4.87 billion. The Bank attributed the £177 million fall to interest and principal payments on foreign debt as well as intervention in the foreign exchange markets.