Short-term interest rates declined markedly this week, and analysts say the brief decline may signal the long-awaited peak in borrowing costs.

Already in response to the decline in rates in the so-called open market -- where banks and businesses raise large amounts of funds -- Chase Manhattan Bank, the nation's third-biggest, cut in prime lending rate from 20 1/2 percent to 20 percent on Thursday. Although other banks did not follow Chase's move, they can be expected to next week if rates continue to slip. The rates on three-month certificates of deposit, a key source of bank funds, have fallen from 19 percent a week ago to about 17 1/4 percent today, according to William Sullivan, vice president of the Bank of New York.

But analysts point out that the key to the future of short-term interest rates is in the hands of the Federal Reserve, the nation's central bank, whose monetary-policy maneuvers can send rates rocketing back up in a twinkle.

Harry Taylor, vice chairman of Manufacturers Hanover Trust Co., said he thinks that the peak has been reached, in large part because inflation seems to be slowing. But he said the decline will be rocky, with rates rising and falling between now and year's end, depending upon Federal Reserve actions.

Patrick Savin of the brokerage firm Drexel Burnham Lambert Inc. said he thinks there is only a 30 percent to 35 percent chance that the recent decline in short-term rates that prompted Chase's prime cut in the start of a real, long-term decline in rates.

"The Fed has yet to win decisively" its battle to keep money growth in line, Savin said.

Henry Kaufman, chief economist for the investment banking firm Salomon Brothers, whose pessimism on interest rates is well known, thinks interest rates may decline some more, but said the "typical" increase in the money supply that occurs in early June could upset even a modest rally.

Late today the Federal Reserve announced that the money supply, essentially cash in circulation and checking accounts, fell $1.2 billion, its second big decline in as many weeks. Bank of New York's Sullivan said the decline should add more fuel to the interest rate declines of this week.

The linchpin of Federal Reserve policy is the money supply. Most economists think that if the money supply grows too fast it fuels inflation. The central bank, by buying or selling government securities in the open market, tries to keep the money supply growing at the desired pace -- an annual rate of 10 1/2 percent.

Sullivan said, however, that despite the good money-supply numbers, the Fed in recent days has taken actions that would mean more tightening in monetary policy and could choke off any interest rate rally.

Other major banks have played it more cautiously than Chase Manhattan, which usually was the first bank to raise it prime rates as well. No other major bank has cut its prime lending rate, although Sullivan said that, barring unforseen developments, most other banks should follow Chase's lead next week.