The Governor of the Central Bank has said he remains openminded about the path of ECB interest rates.
But Gabriel Makhlouf said if eurozone inflation continues on its current trajectory, he would expect to see some change to rates this year.
Mr Makhlouf said that while inflation has fallen in many EU member states, the full extent of the lagged effect of rate increases on borrower finances or economic demand has not yet been seen.
"With disinflation well underway, we are confident in sustainably reaching our target of 2%," the Central Bank chief told TDs and Senators during his opening statement at a meeting of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach.
"Policy rates are now at levels that, if maintained for a sufficiently long duration, will make a substantial contribution to bringing Euro Area inflation back to target."
"Although uncertainties remain, it is clear that our monetary policy decisions are working."
Later in the session, he was asked by Fianna Fáil's Jim O'Callaghan if he expects to see cuts to ECB rates.
"Monetary policy is restrictive and if we continue on this trajectory then I would expect us to see some change, but I think it does depend on what the data ultimately tells us," the Governor said.
Mr Makhlouf outlined that the short-term outlook for the euro area economy points to stagnation because of tightened financing conditions, weak business and consumer confidence and low foreign demand.
"However, the economy is expected to start gradually improving over the course of the year."
He added that while activity in the Irish economy slowed noticeably last year, it is still expected to grow over the coming years, albeit at a slower pace.
But he also warned that a series of general and sector-specific factors could affect those current forecasts.
"First, base effects and a post pandemic normalisation, which mostly relate to the unwinding of the exceptional level of physical investment in the State by multinational enterprises in 2022, as well as in the normalisation of export activity in the pharmaceutical sector post-Covid," he said.
"Second, structural factors such as geoeconomic fragmentation in goods and services trade, and capacity constraints in the labour market and in housing, which limit the scope for higher sustainable growth in the domestic economy."
"Third, the general slowdown of activity globally and domestically, as demand is dampened by tighter monetary policy necessary to bring inflation back to sustainable levels.
The Governor said Irish households have proved resilient in the face of recent challenges and the bank expects that to continue "if economic conditions evolve in line with our forecast."
But he added that there are some borrowers that are more vulnerable, particularly those whose mortgage repayments have increased significantly, and the Central Bank has been working to ensure the financial system is ready to deal with cases of financial distress.
"Overall, the frameworks we have in place have been working, and we intend to ensure this remains the case," he said.
Mortgage switching activity has played a role in ensuring consumers access what they consider to be the best option for their circumstances, the Governor claimed.
He added that tracker rate borrowers and in particular those with a history of previous repayment challenges dating back to the global financial crisis, appear to behind a small rise in early arrears cases seen up to the middle of last year.
"However, challenges remain," he stated.
"We recognise that there is a proportion of mortgages in long-term arrears where resolution of these arrears will require system-wide initiatives and we will continue to work with firms and with the broader system on this."
"We cannot be complacent, notwithstanding the robustness of our framework and our work to enhance consumer protections and supports for those in difficulty."
