A proposed law to give the Central Bank powers enabling it to force banks to cut standard variable rates has been criticised by the European Central Bank's president Mario Draghi.
The legislation was introduced by Fianna Fáil in May in response to concerns that some banks were charging excessive mortgage rates.
In a legal opinion published on the ECB website, Mr Draghi said the possibility of restrictions on the maximum rate that banks are allowed charge for variable interest rate mortgages "could potentially render the market less attractive and discourage new entrants".
He said: "This would lead lower competition in financial services in Ireland effectively defeating the purpose of the draft law."
Mr Draghi also said "extreme caution" should be exercised when transferring power to take commercial decisions from banks to regulators.
He said the ECB was not in favour of the regulation of interest rates charged by banks.
Fianna Fáil's finance spokesman Michael McGrath said: "The ECB seems to have little regard for the plight of ordinary consumers and completely ignores the fact that Irish mortgage consumers are being denied the benefit of ECB monetary policy.
"I would have thought the ECB would be very anxious to see consumers in Ireland benefiting from the historic low interest rate environment," he added.
"As recently as yesterday at the Oireachtas Finance Committee, we had an acknowledgement from Bank of Ireland they are keeping their standard variable rate at a deliberately high level in order to encourage customers to move to fixed rates," added Mr McGrath.
