Banks have been told they must cut variable mortgage interest rates or legislation will be brought in to force their hand.
Central Bank chief Patrick Honohan says banks need to recognise that charging exploitative rates will be counterproductive if it forces government policy reactions.
He made the comments in a report compiled for the Finance Minister.
Michael Noonan is holding a series of meeting with the heads of the country's six banks this week, where he's expected to pressure them into cutting their variable interest rates.