THE Central Bank has warned that it will move to dampen demand for mortgage and other lending in the economy if the rate of credit growth is perceived to be growing too rapidly.

Presenting its annual report yesterday, Central Bank governor Mr Maurice O'Connell stressed that the bank would not be complacent if it believed that strong growth in credit and rising house prices were fuelling inflation.

"If at any point we conclude that this is a serious threat to price inflation we won't hesitate to take action," Mr O'Connell said.

Refusing to outline what measures it would take, the governor said the situation would be monitored "very carefully".

Mr O'Connell said the outlook for the economy was "very stable" with no evidence of a downturn in sight. While the bank has not produced forecasts for 1997 growth rates, Mr O'Connell said there was no evidence to date to suggest that the rate of strong economic growth was petering out.

Forecasting a 5 per cent rise in gross national product in 1996, the Central Bank says that despite its concerns about the housing sector, the rate of inflation will remain at close to 2 per cent. "We don't see what is happening as a threat to it at this," according to Mr O'Connell.

The Central Bank is forecasting another record year for job creation, predicting another 37,000 new jobs for the economy in 1996.

While he would not predict the outlook for interest rates, Mr O'Connell said there was a general perception that European interest rates were unlikely to go lower.

The governor warned, however, that the Bank was not "complacent" on the inflation front. He said the bank was aware that other European states had lower inflation rates than Ireland. It was also "concerned" about credit growth and Mr O'Connell said.

Its main fear, he added, was that competition between banks and building societies for new business could become "too aggressive creating a "difficult" situation for borrowers.

Over the past 18 months, Central Bank statistics have shown that credit has been growing at a rate of between 13 and 14 per cent. "The bank would prefer to see single figure credit growth," according to Mr O'Connell.

As part of its efforts to monitor credit growth in the economy, the bank has held a series of "fact finding" meetings with all of the credit institutions in recent weeks and is that they are exercising appropriate in the lending business, Mr O'Connor.

All of the leading institutions, he said, have assured the Central Bank they do not give 100 per cent mortgages to borrowers.

The banks and building societies have told the Central Bank they have not departed from long established lending criteria, advancing loans of between 2 and 2.5 times the first salary of the mortgagee plus 100 per cent of the second salary in line with lending practises. "There has been no discernable change for quite some time now," the governor has said.

Ia terms of discounts on offer, he said the financial institutions have told the bank these mainly apply to first time borrowers, who are typically offered discounts of between 1-1.5 per cent on normal leading rates for the first year.

While no official figures for 1996 house prices have been issued so far this year, Mr O'Connell said anecdotal evidence suggested that he were rising sharply.

. The Central Bank made a record profit of £198 million last year, up from £131 million in 1994. The bank, which employs 578 people, transferred £176 million of its profits to the Government in 1995, the highest such payment in its history. Governor, Mr Maurice O'Connell said the performance last year was and would not be repeated in 1996.