(Bloomberg) -- The European Central Bank shouldn’t be lured into lower borrowing costs prematurely as there’s insufficient evidence at present that inflation is under control, Governing Council member Joachim Nagel said. 

Officials will only receive a more detailed picture on price pressures inside the 20-nation euro zone during the second quarter, the Bundesbank president said Friday. Only then can the ECB contemplate easing, he stressed, urging policymakers to avoid moving too soon and having to reverse course down the line.

“Even though it may be very tempting, it is too early to cut interest rates,” Nagel said in a statement accompanying the German central bank’s annual report. “This is because the price outlook is not yet clear enough.”

With euro-zone inflation in retreat, officials are debating how much longer they must keep the deposit rate at a record 4%. While many have expressed a preference for making the first move in June, others have signaled they want to cut sooner — possibly at April’s meeting. 

The first camp, which includes Nagel, has frequently warned that the risk of squeezing the economy a little too much is smaller than loosening policy too soon only to see inflation rebound. An account of the ECB’s January policy meeting released Thursday suggested this was the prevailing view at the time. 

New economic projections from the ECB, due in March, will help shape the debate. Officials are also closely watching the labor market, as they’re concerned that historically strong wage gains could keep inflation away from their 2% goal for longer. 

That risk was highlighted this week when business surveys by S&P Global pointed to growing prices pressures, owing entirely to the services sector, which is facing higher labor costs. 

“We should not let ourselves stray away from the path we have embarked on,” Nagel said. “Now it’s a question of demonstrating perseverance even if the remainder of the journey sometimes seems to be dragging on.”

The ECB’s historic tightening campaign has inflicted damage on its own finances and those of national counterparts within the euro area due to the combination of past stimulus measures and quickly rising rates. 

The Bundesbank said it released almost all of its provisions and reserves to offset a loss of almost €21.6 billion ($23.4 billion) in 2023. It expects more shortfalls in the years ahead, which it will carry forward and make up for with future profits, according to the statement.

Nagel said the 2023 figure is likely to be the biggest and that he doesn’t expect a discussion on recapitalizing the Bundesbank. One way to limit losses may be to increase the amount of money commercial lenders must hold in reserve — cash on which no interest is paid.

Nagel denied, however, that the two aspects are linked, saying banks’ reserves should only be seen as a policy tool.

“I would never rule out that such a discussion comes back,” he said. “It’s a monetary-policy instrument, period. And one should always be allowed to discuss monetary-policy instruments.”

The ECB itself on Thursday announced its first loss since 2004 after fully depleting its risk buffers while warning that it won’t turn a profit in the next few years either. It stressed however that this won’t affect its ability to safeguard price stability. 

For Germany, the situation means that the government has to live without a dividend from the Bundesbank for the foreseeable future — at a time when it’s struggling to balance its budget in order to comply with constitutional borrowing limits. 

(Updates with more comments from Nagel starting in 11th paragraph.)

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