The Central Bank has warned that broad based price pressures have increased the risk of more medium-term inflation.
The regulator also said that these inflationary pressures present new challenges for borrowers.
However, the bank said these pressures are coming at a time when many borrowers have built up higher resilience over the past decade.
The analysis is contained in the Central Bank's latest Financial Stability Review (FSR), which outlines both the risks facing the economy and the resilience levels which may help mitigate against those challenges.
The review found that while the effects of the pandemic have eased, the range of medium-term risks have grown in the past six months, with the Russia’s invasion of Ukraine amplifying those.
It said the focus has now shifted to concerns around the impact of lower global growth expectations, significant price pressures and tightening financial conditions.
However, despite the fresh challenges the Governor of the Central Bank, Gabriel Makhlouf, said his own view is that the risk of recession in Ireland is unlikely, although there is always a risk.
"At the moment the risk is slight," he told RTE News.
"The evidence we are seeing in the data show unemployment, just as an example, is very low, staff shortages are an issue across the country."
"That is not the sign of an economy that is going to go into negative growth."
The FSR states that supply chain bottlenecks and disruptions continue to impede global growth and will likely compound existing inflationary pressures.
"The biggest drivers of inflation remain energy, partly because of the war in Ukraine, partly because of the ongoing impact of lifting the restrictions coming out of the pandemic and the supply chain issues that the global economy is still trying to adjust to," Mr Makhlouf said.
The report said the capacity of households to service debt is vulnerable to inflation on non-housing expenditure and potential interest rate rises.
But despite this it claimed many households are resilient, underpinned by a decade of falling debt levels, liquidity buffers from pandemic savings, housing equity from strong price growth and income growth in the most borrower-concentrated sector.
Nevertheless, Mr Makhlouf said the cost of borrowing would go up and people's own circumstances would dictate how best they can handle that.
"Debt servicing will become an issue, mortgages will become more expensive...but the important thing to remember about the interest rate decision we took last week is that it is about repairing the damage that inflation causes," Mr Makhlouf said.
"Inflation harms consumers, it harms households, it harms businesses, it is not good for the economy."
"So over the medium term we will be removing harm from the economy."
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The report also claimed domestic price pressures coupled with a tight labour market all point to emerging pressures in certain sectors, including the housing market.
Pandemic-related risks reducing, but the medium-term risks have been building & are amplified by the war in Ukraine. (🧵2/4) pic.twitter.com/4zkg07Fl9U— Central Bank of Ireland (@centralbank_ie) June 15, 2022
It said rising input costs, labour shortages and supply chain issues may hamper the housing supply response, at a time when Ireland's humanitarian response to the crisis in Ukraine is adding to the existing demand for housing.
"Demand for housing is still there, is still pretty strong, so it continues to be important for supply to continue to deliver," Mr Makhlouf said.
The research found that financial conditions around the globe have tightened considerably because of the changing economic environment and the beginning of a period of monetary policy normalisation.
It said the deterioration in global financial conditions could have implications for the domestic financial system through higher borrowing costs for the State, higher debt funding costs for banks and borrowers and for the commercial real estate market through the impact on foreign investor sentiment.
"Interest rates as they are about to go up are going to increase the cost of borrowing to the State," Mr Makhlouf said.
"The State is in a pretty solid position, but it carries risks. The sustainability of its debt over the medium term needs to be maintained because the cost of its borrowing is going to go up."
"So I think it is important that there is a focus on the medium term. For example, the fact that corporation tax receipts are at such high levels should not be taken as a reason not to worry about the sustainability of the public finances. That requires ongoing focus."
The FSR also found that while the economic and financial risks from Covid-19 have receded globally, the potential for future disruptions to economic activity due to a resurgence of the virus remain.
The review predicted that following the withdrawal of State supports, business insolvencies are likely to rise from current low levels, underscoring the importance of policy frameworks that support efficient liability restructuring and firm liquidation.
The bank also announced that the rate of the Counter-Cyclical Capital Buffer (CCyB), a policy which requires banks to put aside more or less capital at different time of the economic cycle depending on conditions, is to increase by 0.5%.
It was introduced in 2018 and was set at 1%, but was reduced to 0% in 2020 when the pandemic began.
However, the Central Bank said that following the completion of a review it has decided that it will rise again to 0.5% in 12 months time and at that point it may announce that it will rise further to 1.5%, depending on financial conditions.
The bank said this increase acknowledges a shift in the risk environment and the resilience required to ensure the banking system can serve households and firms in future periods of stress.
Overall, the regulator said profitability in the banking sector has recovered and is set to be bolstered with cost savings from consolidation and potential interest rate increases, which are likely beneficial for profitability.
The review found the retail banks have capital headroom above regulatory requirements, putting them in a position to absorb negative shocks without adverse knock-on implications for consumers or the economy.
In relation to the mortgage lending rules, the Central Bank’s said its wider framework review of the mortgage measures is ongoing.
Last November, it announced that it would not be changing the current borrowing rules.
Today the bank said the measures continue to incrementally improve the resilience of banks’ balance sheets, with close to half of all outstanding mortgages issued since their introduction.