The departing Central Bank chief has warned the Government that it risks stoking overheating pressures that could do lasting damage to the economy if it does move towards running "significant" budget surpluses.
Citing data last week that showed unemployment in Europe's fastest growing economy was far lower than thought at 4.6%, Philip Lane used his final outing before taking over as European Central Bank chief economist to renew his call for greater fiscal prudence.
The Central Bank has been urging the Government to do more to cool the economy since 2017 and has been disappointed that the budget only returned to balance for the first time in a decade last year, with small surpluses forecast for the next two years.
"We are convinced that this is not a small issue. People should not be in denial, there is a limit to asking what the Irish economy can deliver," Lane, who joins the ECB's executive council on a full-time basis next week, told a news conference.
"Our advice to the Government to run bigger surpluses is partly to do with fiscal sustainability but actually the bigger issue right now is not to demand too much from the Irish economy."
Finance Minister Paschal Donohoe, who last week said Ireland was now close to full employment, responded that Lane's comments showed why it was so important the government delivered its targeted surplus of 0.2 percent of GDP this year.
Mr Lane, who will be replaced from September by New Zealand treasury chief Gabriel Makhlouf, said policymakers would have to keep a very close eye on wages which were growing strongly at 3.4% year-on-year and more so in "some very hot sectors."
It was hard to say that there is overheating taking place unless Ireland's "remarkable" employment situation leads to significant wage increases, he said.
"But this is something to be really concerned about, that if we have overheating, the damage could be quite long-lasting because it's easy to raise wages, it's very difficult to cut wages," Lane said.
"Everyone is aware of this, what I say is no different I'm pretty sure to what the analysis would be in the Department of Finance, it's really translating that into an outcome because you need the political consensus to prioritise financial and macro stability."
Lane added that Ireland and the euro zone had been ready for a no-deal Brexit in March and remained ready in the event of a chaotic British departure from the European Union, the chance of which he said was rising.
Meanwhile, bond sales linked to the resolution of the banking crisis here helped the Central Bank record a profit of €3 billion last year, €2.4 billion of which has been paid to the state to help cut the national debt.
The annual surplus paid to the state has risen sharply in recent years as a result of government debt the Central Bank acquired during the financial crisis.
This related mainly to the liquidation in 2013 of the collapsed Anglo Irish Bank.
Ireland's national debt ballooned during the financial crisis a decade ago, partly as a result of its bank bailout, the most expensive in the euro zone.
The Government slowly put the €25 billion worth of new bonds - with maturities ranging from 27 to 40 years - into the market via the Central Bank as part of an agreement with the European Central Bank to stretch out the liquidation costs and ease the country's debt burden.
The value of the bonds has risen in line with the higher prices attracted by Irish government debt.
That has led to large capital gains over the last four years, when the bonds were sold more quickly than expected.
The ECB wants Ireland to offload the debt as quickly as possible and the Central Bank had disposed of €5 billion worth on a nominal basis, as of last week.
Before the disposal of €1.5 billion this year, the bonds' market value stood at €17.7 billion at the end of last year, meaning there is currently an unrealised gain of €6.2 billion, the Central Bank said in its annual report today.
"While the last number of years has seen elevated levels of surplus income, the fading out of the temporary accounting impact of the special portfolio of floating rate notes means that headline profits will normalise over the medium term," outgoing Central Bank Governor Philip Lane said in a statement.
During the year, Governor Lane said that the Central Bank made considerable progress in its Tracker Examination.
The latest update shows that €647 million has been returned to 39,800 affected customers, while enforcement cases against the six main lenders are ongoing.
The Central Bank also published a detailed assessment of the behaviour and culture of the Irish retail banks and set out related reform proposals to enhance the individual accountability of senior bank executives.
"Much our time and resources over the last year have been focused on Brexit, in terms of contingency planning, risk management and firm authorisations," Professor Lane said.
"We will continue to analyse and work to mitigate the risks posed to the economy, consumers, the financial system, and the regulatory environment," the Professor, who is due to take up his new job as chief economist the ECB next week, stated.
"We will also continue to work to ensure that financial services firms have robust contingency plans to cope with all Brexit scenarios," he added.