Private sector borrowing rose at the fastest rate in over five years last month, according to figures published by the Central Bank yesterday.
Demand for credit increased to 28.6 per cent during September, up from 28.2 per cent in August.
Residential mortgage lending continued to soar, with financial institutions lending almost €2 billion.
The figure was the third highest on record, behind only August and July of this year.
However, the annualised growth rate for mortgage lending dipped slightly to 25.8 per cent from 25.9 in August because of strong mortgage credit growth in September 2004.
Residential mortgage lending has risen by just under 26 per cent in the year to date, a rate that would mean mortgage lending to homebuyers within the State doubling in only three years.
Overall, private sector borrowing rose by €4.4 billion during September to €241.2 billion.
Most areas saw increases with overdraft balances increasing by €363 million, short-term loans jumping by €1.4 billion and outstanding balances on longer term loans over €1.2 billion higher than in August.
Hire purchase and other instalment credit was €157 million weaker last month as was the amount tied up in repurchase agreements, which dropped by €153 million.
Lending to companies in the IFSC other than banks was also down, €130 million lower on the previous month.
Bloxham economist Alan McQuaid said there appeared to be no let-up in the demand from Irish consumers for credit. "Strong employment growth and optimism about the economy going forward are contributing to this," he said.
"However, the main factor driving credit demand is low interest rates."
European Central Bank (ECB) rates remain at a historic low of 2 per cent and have been unchanged since June 2003.
"Many believe this low interest rate regime will go on indefinitely but they are likely to be mistaken," says Mr McQuaid.
The ECB has adopted a more hawkish tone in recent weeks and analysts now expect interest rates to rise in the first half of next year.
Austin Hughes, chief economist at IIB Bank, believes the ECB is preparing the market for a rise as early as December.
Mr McQuaid says that even an small increase in rates - such as the expected quarter point rise initially - could have "serious negative consequences" for exposed Irish consumers.
However, he adds: "We still think it will need quite a sharp tightening of policy (one percentage point or more) to bring credit growth back to single digits and more in line with the euro-zone norm."
