Capacity constraints 'threaten' inflation targets, warns financial watchdog

'Ambitious housing-related and capital infrastructure projects will test capacity constraints even further and could fuel wage demands in related sectors, threatening inflation targets'

Central Bank governor Gabriel Makhlouf criticised banks last year for lagging behind eurozone banks in respect to pass-through of interest rate increases to the household sector. Picture: Shane O'Neill

The Central Bank said capacity constraints may overheat the economy as Ireland reaches full employment, while a chronic lack of housing continues to put pressure on house prices. 

In its Financial Stability Review, which is published twice a year, the financial regulator said Ireland’s economy remains exposed to some risks including the impacts of ongoing wars and capacity constrains in relation to infrastructure projects.