THE State's biggest mortgage lender, Irish Permanent, is expected to kick off a round of interest rate hikes today, announcing an increase of a half of one percentage point in its rates.
The Irish Permanent has already withdrawn its range of fixed rate mortgage options for new borrowers and is expected to introduce a series of new fixed rate products, at a higher rate of interest, soon.
The other banks and building societies will also be reviewing their rates today with many expected to follow the Irish Permanent in announcing a similar increase in mortgage and other interest rates later this week.
The increase will add £12 a month to the cost of a £40,000 mortgage over 20 years. Borrowers with a mortgage of £60,000 would face a monthly increase of £18 from next month.
All of the banks and building societies will be closely watching developments in the currency markets this morning, to see whether a half of one percentage point rise in interest rates will be sufficient.
Before the weekend, the Central Bank, gave a clear indication that it wanted banks and building societies rates to go up by just a half of one percentage point.
The bank aggressively intervened in the money markets to keep key one month rates at around 6.25 per cent on Thursday and Friday, the rate which would trigger the half of one percentage point rise in retail rates. If the pound comes under renewed pressure again this week, however, some analysts are concerned that these rates may come under some further pressure.
Analysts will be watching the extent to which the pound is tested on the foreign exchange markets when trading resumes today. Some economists expect that some selling pressures could reemerge as traders in London and across Europe turn their attention again to the Irish currency.
It was felt that some had taken their eye off the pound temporarily last week, focusing mainly on the British election result and its impact on sterling. After the landslide Labour victory, sterling held relatively steady on Friday, showing only temporary jitters before closing slightly down.
The markets will now be monitoring the outcome of the meeting between Britain's new Chancellor, Mr Gordon Brown, and Bank of England Governor Mr Eddie George tomorrow.
Mr George is expected to urge an interest rate rise to counter any inflationary pressures. Mr Brown is also coming under pressure to allow taxes to be raised substantially in a special budget in June or July.