Raising the ECB's minimum reserve requirement for banks could help counteract the negative effect on monetary policy transmission of increased interest payments on central bank deposits, Bundesbank boss Joachim Nagel said in a speech Friday.

"The increasing remuneration of reserves may impede transmission, all else being equal," he said. "The minimum reserve requirement is a tried and tested monetary policy instrument that could help to counteract this effect. At this point, I see no reason to rule out a moderate increase to improve the efficiency of monetary policy. Just to remind you, over the first 13 years of the euro, the minimum reserve ratio stood at 2%."

Nagel said he was not yet sure interest rates have peaked. But he was optimistic that the ECB can dampen demand sufficiently to bring inflation back to 2% in a timely manner, while avoiding a hard landing, adding that concerns that tighter credit supply conditions could amplify transmission have not yet materialised. "According to Bundesbank model estimates, the tightening can be expected to have its maximum impact on economic activity in 2023 already, and on inflation only in 2024," he said. "In other words, much of the inflation-dampening effect induced by monetary tightening is yet to materialise. But we need it to materialise. And it will only materialise in full if we let it work."