IRISH one month money market rates have continued to trade around 5 per cent, keeping hopes of interest rate cuts alive.

The recent fall in Irish wholesale rates has widened the gap with the Central Bank's short term facility to 1.5 percentage points.

The gap between the money market rates and the STF, at 6.5 percent, leaves the central bank with "ample room for a rate cut", according to Riada stockbrokers' weekly note.

Building societies and banks would take a cut in the STF as a clear signal from the Central Bank that it is relaxed about rate cuts. As "a result, many commentators believe the central bank will wait for an official German interest rate cut before moving.

"They would prefer to follows than to lead," said Mr Jim Power, chief economist at Bank of Ireland Treasury.

Riada also believes the Central Bank is more likely to await a cut in official rates in Germany before it cuts the STF. The Bundesbank widely expected to announce a cut in the key German discount rate on either February 15th or 29th, should lead to immediate cuts Irish rates.

However, if wholesale rates continue to trade at or below 5 per cent, retail rate cuts could first. Retail rates closely follow money market. Economists predict that banks and building societies would have room to cut rates to borrowers if the one month money market rate trades at or below 5 per cent for a week.

ABN also points to evidence that the Central Bank bought pounds in December. This was "presumably with a view to improving the ing of the pound versus the mark," the note says.

"Clearly the EMU objective taken precedence over the that the pound strength sterling causes for Irish exporters to Britain."