Dublin-based economists believe the European Central Bank (ECB) will raise its core interest rate by mid-September after the publication yesterday of figures showing euro zone inflation unchanged at 2.4 per cent in July.

Yet there is uncertainty about whether the bank will raise the rate by a quarter of 1 per cent or half a percentage point in a move to cool euro zone growth.

For the first time since the euro was launched in January 1999, all 11 euro zone states have reported inflation rates at or above the 2 per cent ceiling set by the ECB. The 6.2 per cent rate reported last week in the Republic was the highest in the EU.

The minimum refinancing rate of the ECB, which is due to meet for the first time after its summer break on August 31st, is currently 4.25 per cent. The central bank's board of governors will also meet on September 14th, so there is uncertainty about whether it will raise rates at the first meeting.

"Without question they'll raise rates, but the scale of the rise is still up in the air," said Dr Dan McLoughlin, chief economist at ABN Amro. Forecasting a move to more "neutral" rates, he said the degree of the increase would depend on three things.

These were: the value of the euro against the US dollar, which has fallen since the last rise in June; money supply data; and preliminary indications of inflation in August derived from figures compiled by Germany states and Italian cities.

"Given the way the European economy is growing now, they regard monetary policy as too loose. I see them moving back to some kind of a more stable regime," said Mr Dermot O'Brien, chief economist at NCB Stockbrokers. He also forecast a move to "neutral" rates and said the ECB was likely to raise rates to 5 per cent, but no higher, by the end of the year. "They're not going to continue jacking up rates forever."

Stating that a quarter-point rise was likely, he said the previous half-point rise was following the trend in the US.

Mr Niall O'Sullivan, an economist at Bank of Ireland, also expected rates to rise by mid-September. "Logic would dictate that they should go up a quarter basis point and keep a quarter in reserve," he said. Citing a 0.5 per cent rise in June, he said the ECB may be keen to avert a general expectation of half-point rate increases.