The ECB recorded its first losses since 2004 due to rising interest costs
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The European Central Bank (ECB) posted its first annual loss in nearly two decades as it hiked interest rates in response to a spike in EU inflation.
About this writes Financial Times.
It said the €1.3bn loss for 2023 reflected the impact of higher interest rates paid to national central banks, which the ECB raised to record levels in response to the biggest spike in inflation in its history.
“Last year, the central bank would have suffered much larger losses if it had not used the remaining 6.6 billion euros of reserves formed by it in recent years to cover financial risks,” the report says.
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Higher rates have pushed the ECB’s net interest costs up, reflecting a sharp increase in interest paid to other national central banks that use the euro, from €900m in 2022 to €7.2bn last year.
However, the interest that the ECB earns on the huge portfolio of bonds it has bought over the past decade has not even come close, as many of them are long-term government securities that have held low or even negative interest rates for years.
The ECB’s deteriorating financial outlook has already forced it to scrap the dividends it paid national central banks last year. These dividend payments, which amounted to €5.8 billion between 2018 and 2022, are usually transferred by national central banks to eurozone governments.
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The central bank said it was “likely to incur losses over the next few years, but is then forecast to return to sustainable earnings.” It added that its balance sheet is supported by its capital and “significant revaluation accounts”, which together totaled €46 billion at the end of last year.
It added that the last time the ECB made an annual loss was in 2004, when it suffered foreign exchange losses due to a surge in the euro, but it absorbed those losses rather than carrying them forward. The ECB made a zero profit last year as it used reserves to cover a €1.6 billion deficit.
We will remind:
The European Central Bank (ECB) again kept three key rates at the previous level: base rate – 4.5%, margin credit line – 4.75%, deposit line – 4%.
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