The Governor of the Central Bank has said the European Central Bank needs to continue to increase interest rates when its Governing Council meets in Frankfurt next week.

Speaking at an appearance before the Joint Oireachtas Committee on Finance, Public Expenditure & Reform and Taoiseach this afternoon, Gabriel Makhlouf said rates need to be increased by another 0.5% next week and by a similar scale at its March meeting.

"We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions – and also at our March meeting, although our future policy decisions need to continue to be data-dependent given the prevailing uncertainty," he told the Committee.

He went on to say that inflation 'remains far too high' and that ‘interest rates will have to rise significantly at a steady pace’ to bring inflation down to the ECB’s target level of 2%.

The Governor also said the outlook for inflation in Ireland is improving due to moderating energy prices.

He said the Bank expects that inflation peaked here in the last three months of last year and will continue to moderate over the course of this year.

He said the Bank still believes growth will be positive, but also lower, in the economy this year. It will update its forecasts in its next Quarterly Bulletin in early March.

Mr Makhlouf said that banks and financial institutions need 'to be proactive in supporting their customers' as interest rates go up.

He told the Joint Oireachtas Committee on Finance, Public Expenditure & Reform and Taoiseach that the Bank doesn’t have a role in approving rates charged by lenders but it does expect financial firms to have arrangements in place to deal with customers in or facing arrears.

Pearse Doherty, Sinn Féin spokesman on finance

Meanwhile, the Sinn Féin spokesman on finance, Pearse Doherty, has accused the Central Bank of 'washing its hands' of mortgage holders who have been transferred to what he described as ‘vulture funds’ and now face variable interest rates of 7%.

Deputy Doherty directed his remarks to the Governor of the Central Bank and two senior officials who were before the Joint Oireachtas Committee on Finance, Public Expenditure & Reform and Taoiseach.

The deputy cited an example of a former customer of Permanent TSB, who he said had been a victim of the tracker mortgage scandal, who had his mortgage sold off by the bank to a fund. The man is now facing €5,000 more a year in mortgage repayments.

Pearse Doherty said customers like this had been sold ‘a pig in a poke’ with assurances that their mortgage terms and conditions would remain the same.

In response, the Director of Consumer Protection with the Central Bank Colm Kincaid, said the Bank is engaging with non-bank lenders and credit servicing firms to find out what options are being offered to customers when it comes to switching and discounts on rates.

He said the Bank doesn’t have any powers when it comes to the rates set by financial institutions.

He said the Bank is ‘very much alive’ to the situation described by Deputy Doherty and accepted it’s ‘reasonable to anticipate’ a higher level of arrears may arise due to recent increases in interest rates.

Mr Kincaid revealed that approximately 30,000 borrowers with non-bank lenders and credit servicing firms are on variable rates while approximately 35,000 are on trackers.

Just over 14% of mortgages, or just over 100,000 accounts, are with non-bank lenders and credit servicing firms. Some of these firms don’t have banking licenses and therefore can’t offer to fix mortgages for customers.