(Bloomberg) -- A cut in European Central Bank interest rates won’t be happening in the near future, according to Bundesbank President Joachim Nagel. 

Borrowing costs “have to remain at a high level for a sufficient period,” Nagel said in a speech in Frankfurt on Friday. “While it is impossible to predict exactly how long this period will be, it is highly improbable that it will end anytime soon.”

While Governing Council members have emphasized that the deposit rate will remain at 4% well into 2024, money markets are betting on a reduction as soon as April and now price in a full percentage point of rate cuts next year.

Nagel, who’s repeatedly said that it’s too early to talk about lowering borrowing costs, on Friday emphasized that it isn’t even clear if the ECB is at peak rates as consumer-price growth — currently at 2.9% — might still be affected by geopolitical shocks. 

“To avoid the economic damage caused by inflation being too high for too long, we need to restore price stability,” he said. “As of now, it is too early to declare victory over inflation.” 

The record tightening spree has taken a toll on the economy, which has struggled to grow this year. The European Commission this week predicted that the region will avoid a recession, yet Governing Council member Mario Centeno this week told Bloomberg that he’s concerned whether the euro area will have a soft landing following a lack of growth in recent quarters.

Nagel was more upbeat, saying that he’s “optimistic that we can avoid a hard landing of the economy.”

He cited several factors including “unusually stable, and also tight labor markets, favorable indebtedness levels among firms and households, and strong investment activity.”

Nagel also said:

  • “I see no reason to rule out a moderate increase” of the minimum reserve ratio “to improve the efficiency of monetary policy”
    • “Over the first 13 years of the euro, the minimum reserve ratio stood at 2%”
    • “The increasing remuneration of reserves may impede transmission, all else being equal. The minimum reserve requirement is a tried and tested monetary policy instrument that could help to counteract this effect”
  • In Germany, “interest rate changes have a stronger effect on real GDP than they do in Spain”
    • “This could be the result of the more prominent role of interest rate-sensitive sectors in Germany, a more flexible labor market, a stronger focus on exports, or greater competition in the banking system. By contrast, the price level response is stronger in Spain than in Germany. And in Italy and France, by the way, it is somewhere in between”

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