MORTGAGE rates could be headed up again if next month's mortgage lending figures remain high, according to leading analysts.

The Central Bank has been allowing key money market rates to edge up further this week. The key one-month rate closed yesterday at 5.44 per cent. Most analysts believe that a move above 5.5 per cent would trigger a general round of rate increases.

The one-month was trading at, or just below, 5 per cent when interest rates were last cut.

However, the Bank has been sending mixed signals to the market over the last week.

It came into the market last Monday and increased liquidity, saying rates were too high, Mr Jim Power, chief economist at Bank of Ireland Treasury, said. Rates had drifted up after higher-than-expected US job figures and Irish credit numbers.

But when the one-month fell back to around 5.25 per cent, the Bank said the rate was too low and kept the market "short", allowing the rate to drift back up again.

Mr Power said it now appeared the Bank was happy with the around its current level.

"If the rate moves as high as 5.5 per cent, we will be in the realms of retail rate rises," he said.

"The strength of the mortgage market is the Central Bank's primary concern. Although lending data for June are likely to be strong, it would be totally inadvisable and fundamentally unjustified for the Bank to allow rates to rise at this stage. The Bank, should wait until the September and October mortgage figures are out."

But he added that if there was "continued buoyancy" in mortgage lending in September, the Bank should "consider engineering a tightening."

He also warned that rising rates would single Ireland out in Europe. "Rising interest rates may not be consistent with our Euro credentials, as we need to see European rates converging," he said.

However, the Central Bank's problem is that it is seriously worried that continued buoyancy in the mortgage market could feed through to inflation. Mr Dermot O'Brien, chief economist at NCB Stockbrokers, said that the Bank was undoubtedly nervous and allowing rates to edge up. "If the one-month moves over 5.5 per cent, there is a definite danger of the last rate cut unwinding," he added.

Other analysts pointed out that many of the banks have been positioning themselves for a rate rise.